Government

The Federal Reserve has made it clear that its remaining two 2023 decisions on interest rates will be data dependent , with another rise in interest rates possible but not certain. If there is a government shutdown, there’s a real risk some data the Fed might base any interest rate decision on will be delayed, disrupted or even absent.

Economic Data

Key U.S. economic data releases such as inflation reporting, unemployment statistics and many others are provided by the government. However, this research generally is not considered essential. Therefore, economic analysis and reporting, like many other non-critical government services , would be expected to stop were the government to shut down on October 1.

Now, a government shutdown may be averted and even if one occurs, historically they have often lasted only a few days. Still, that may be enough to disrupt certain economic releases. During the first week of October, significant data on the jobs market would be disclosed, if the government remains operational. That includes the U.S. unemployment report on October 6. Also, the key Consumer Price Index for September would typically be expected on October 12.

The Fed’s Calendar

The Fed doesn’t plan to announce its next decision on interest rates until November 1. Even then, should a shutdown occur, it’s highly likely to have been resolved by that date. Importantly, the Fed will continue to operate during any shutdown because it’s funded by industry fees and not the government’s budgetary process.

However, the Fed typically likes to guide market expectations in the weeks leading up to a meeting via public speeches and other comments, and that process may be less robust if key economic data is delayed. In order to set interest rates, the Fed first needs a clear assessment of trends in areas such as unemployment and inflation.

The Economic Impact

Of course, a government shutdown will have its own impact on the economy, too, beyond the effect on data releases. It’s unlikely a shutdown would trigger a recession by itself , but it’s still likely to be a temporary drag on growth and create various disruptions. Many households face the prospect of delayed paychecks and many government services are paused, including some food assistance programs.

In that sense, a government shutdown might make the Fed more cautious in raising rates. It could, at least, push any potential hike back to December when the Fed has a clearer economic picture once any disruption to data releases presumably would be resolved.

A government shutdown could have many unpredictable economic impacts. One of those is likely complicating the Fed’s interest rate moves. The Fed would remain operational during any shutdown, but economic data would almost certainly be disrupted. Currently, the markets estimate the Fed is becoming less likely to move rates up in November. The increasing chance of shutdown might, in part, be why.

The federal government will likely shut down in three days, and so far, Congress cannot agree on future spending levels or find the votes needed to pass a short-term extension.

At the center of this turmoil is Speaker Kevin McCarthy who, unlike Senate leaders, has largely refused to pass spending bills in a bipartisan manner. With Republicans controlling the House by a slim margin, McCarthy cannot lose more than five votes, and some of his own conservatives have shown little desire to compromise when legislation does not meet all of their desires.

Aware of the blame Republicans have faced for past government shutdowns, McCarthy and other Republicans have taken to blaming President Joe Biden for a potential shutdown, ignoring the fact that funding the government is a congressional responsibility.

On Tuesday, when asked whether there’d be a shutdown, McCarthy said, “I don’t know. Ask President Biden.” He later doubled down on the position saying, “The president can keep government open by getting something on the border.”

The Senate aims to pass a “continued resolution” (CR) that would push back the shutdown deadline by extending government funding at its current levels while also extending funding for the Ukraine conflict. Nearly half of House Republicans oppose supporting Ukraine and instead want to see funding for the border included in their CR.

However, the border provisions Republicans want have not seen bipartisan support and are unlikely to pass the Senate. If the two chambers cannot come to an agreement the government will shut down. Since McCarthy made his remarks, GOP leaders have ramped up this message.

When asked how much blame he believes the president deserves for a potential government shutdown, Texas Congressman Chip Roy, policy chair of the hard-right Freedom Caucus, said “pretty much all of it” because he’s “utterly failed to do his job to secure the border.”

Florida Congressman Byron Donalds, a rising star within the Freedom Caucus who gained national notoriety after being nominated for speaker when conservatives were looking for a McCarthy alternative, echoed Roy’s stance. He dismissed potential Senate opposition.

“I’ve been very clear that the government should not continue to be funded if our border is not secure,” Donalds told Newsweek . “We’ve passed a border security bill. The Senate has not talked about it. They’ve not debated it. They’ve not said, ‘Hey, let’s come up with our own and send it back to the house.’ They’ve not done anything. They’ve basically fiddled while the border burns.”

The border remains a political vulnerability for the White House as migrant encounters at the southwest border reached the fifth highest level seen over the course of the Biden presidency, with U.S. Customs and Border Protection reporting nearly 233,000 encounters .

Despite this, it remains to be seen whether voters will link this situation to a potential government shutdown and hold the president responsible.

A poll released Wednesday by Monmouth University found that if the government shuts down, 27 percent of Americans will blame Biden, 43 percent will blame Congressional Republicans, while 21 percent will blame Congressional Democrats .

House Democrats find the notion of the president being to blame laughable. New York Congressman Jamaal Bowman , an outspoken member of the Congressional Progressive Caucus, laughed when asked to respond to McCarthy’s comments.

“Speaker McCarthy is the ultimate example of a weak leader; a weak leader never holds themselves accountable—they always point fingers at someone else,” Bowman told Newsweek . “What’s most disappointing and unfortunate is we continue to display a fractured government that can’t get things done under his leadership.”

Illinois Congressman Chuy Garcia, also a member of the Congressional Progressive Caucus, similarly sees the GOP’s border rhetoric as a desperate move. He expressed frustration that the situation has even materialized, given that McCarthy and Biden struck a deal on spending levels following spring debt limit negotiations.

He said that McCarthy’s reneging of the deal, fueled by demands from his conservative flank to cut spending, represents a failure of leadership, and he believes the border is being used as a weapon of convenience to deflect the pressure Republicans are facing.

“What’s your word worth if your signature doesn’t mean anything?” Garcia told Newsweek . “They empowered their leader to enter into an agreement with the president during the debt ceiling negotiations, and they should live by it.”

“The border is being used as a weapon,” he added. “It’s a distortion. They’ve always blocked immigration reform.”