Lawmakers in Washington, D.C. are scrambling to ensure continued funding of the U.S. federal government and avert a shutdown that could occur as early as September 30.
Politicians must pass legislation in both the House of Representatives and Senate on continued federal funding or risk a government-wide shutdown.
Republicans are calling for spending cuts of $1.47 trillion U.S. for fiscal year 2024. However, those spending cuts are unlikely to pass in the Democratic-controlled Senate.
House Speaker Kevin McCarthy is reportedly trying to bridge divides within his Republican Party and negotiate compromises with Democrats and President Joe Biden to avert a shutdown.
A government closure would result in thousands of furloughed federal workers, the shutdown of agencies such as the Internal Revenue Service (IRS), and a halt to essential programs, including the processing of Social Security checks for retirees.
The last U.S. government shutdown in 2018-19 was chaotic and costly. The benchmark S&P 500 Index fell 9% in the lead-up to the shutdown, marking the worst December since 1931 for the stock market.
The previous government shutdown ended after 35 days in what was then the longest shutdown in American history, zapping $3 billion U.S. from the economy.
In August of this year, Fitch Ratings downgraded the U.S. long-term credit rating to AA+ from AAA, citing concerns about fiscal deterioration and an erosion of governance in Washington.
Fitch singled out “repeated debt-limit political standoffs and last-minute resolutions” in Congress as an issue that has “eroded confidence in fiscal management” within the U.S.
A government shutdown in the coming weeks could lead to further credit rating downgrades that negatively impact confidence in the U.S. economy and roil the stock market.
The U.S. government’s fiscal year ends on September 30, with operational funding expiring at the end of that day.
In mid-October, the federal debt ceiling will once again be reached. A first-ever default on U.S. federal debt could occur if Congress does not raise the ceiling on the government’s debt limit by then.