The risk to the U.S. economy from a potential January government shutdown is fading as progress is made on a continuing resolution that would create a new two-tier March deadline for funding of many government activities. For example, event forecasting site Kalshi now estimates a 4% likelihood of a January shutdown, down from 30% in past weeks as a continuing resolution makes bipartisan progress. Senate Majority Leader Chuck Schumer (D-N.Y.) stated he expected a continuing resolution to pass by this Thursday, CBS News reported.
It appears some progress is also being made on passing a full budget. So, it’s possible that this is the final continuing resolution of this budget cycle and a full budget is agreed before the potential March deadline is hit. A top-line spending agreement was reached earlier this month, which creates a framework for a budget and is a signal of progress.
Likely New March Deadlines
Assuming the continuing resolution becomes law, the new government shutdown deadlines then move to March 1 and March 8 for different agencies, in the same fashion as the previous CR.
Assuming the continuing resolution passes this week, the budgetary areas that would potentially see funding lapse on March 1 are as follows: Agriculture, Rural Development, and the Food and Drug Administration; Energy and Water Development; Military Construction and Veterans Affairs; and Transportation, Housing and Urban Development. Funding for the remaining eight appropriations areas would expire on March 8.
Economic Impact
Of course, a lack of action prior to those potential March deadlines could result in a government shutdown. That would delay pay for government workers and disrupt many government activities. The economic impact would likely be significant from any shutdown because a delayed paycheck for many government employees would impact overall consumer spending.
In addition, a halt to a range of government activities would very likely also hurt growth and potentially disrupt industries that disproportionately rely on government activity such as healthcare and defense.
Next Steps
This measure, if it becomes law, would be the third continuing resolution. This keeps the government running without a full budget in place.
After the first continuing resolution, on Sept. 30, 2023, progress on a budget was disrupted by the ousting of then-House Speaker Kevin McCarthy and the selection of his replacement, Mike Johnson.
Then the second continuing resolution on Nov. 16, 2023 also saw limited progress on an overall budget, in part, due to lack of activity over the holiday period.
Now, assuming the current continuing resolution becomes law, legislators do appear to have some momentum to create a budget before the March deadline. That said, there is still significant work to be done to reach a full budget and once again it is likely to be a bipartisan process due to slim majorities in both chambers.
A government shutdown would likely be a significant drag on financial markets as a shutdown of any length would be a material hit to U.S. economic growth. The probable passage of a continuing resolution, which would avoid a potential January government shutdown, is therefore likely a positive in avoiding a material risk. However, there would then be some chance of a March shutdown if budget progress stalls.