The political soap opera that Capitol Hill has become does not appear to be ending anytime soon. Once again, elected officials are generating drama and grabbing headlines in regards to America’s financial situation. However, that does not mean investors should stick around to watch the show.
Congress failed to reach some kind of a temporary budget agreement — known as a continuing resolution — by the end of last month, causing several parts of the government to shut down indefinitely. Thousands of federal workers are furloughed without pay and numerous government offices and programs are now closed. Functions deemed essential, like national security and emergency services, remain open. Congress is also in session.
While the full effect of a government shutdown is not exactly clear, since the White House has some control over the procedure, Moody’s Analytics chief economist Mark Zandi estimates that only 20 basis points of annualized economic growth could be lost during the fourth quarter if the shutdown lasts a few days. If the shutdown lasts three or four weeks, it could reduce America’s gross domestic product growth by 1.4 percentage points.