Remember all the folks screaming about how awful a US government shutdown and potential default would be?
And then Fitch listened and downgraded the US on governance worries?
And then all those folks screaming about a default laughed at Fitch?
Anyway, here we go again. The upper house of the US Congress has returned to session, while the lower house comes back on September 12.
BoA analysts on what's ahead:
- Funding the government for next year is perhaps number one on its to do list as the fiscal year ends on September 30. Absent a funding bill or continuing resolution, the Government would shutdown at the end of the month.
- As it stands today. we maintain our outlook for Congress to pass a continuing resolution averting a shutdown on October 1. With so little time before the fiscal year is up. leaders from both parties have signaled that a continuing resolution would likely be needed to avoid a shutdown and provide more time to finalize appropriations. Indeed, even House Speaker Kevin McCarthy (R-CA) has voiced support for a stopgap bill.
Which all sounds encouraging, right? BoA is not so sure, saying that the likelihood of a shutdown is:
- close to a coin flip
- While party leaders have publicly supported using a continuing resolution to avoid a shutdown, not all members of Congress are on board. Critically, the House Freedom Caucus—a group of about three dozen conservative Republicans—has said they would only support a continuing resolution that includes the Secure the Border Act of 2023 and other demands that are likely non-starters in the Senate. Given Republicans slim majority in the House, the stance of the House Freedom Caucus greatly increases the risk of a government shutdown, in our view.
- If there is a shutdown, we expect it to be brief
Here we go again ...