Flash: A government shutdown looms - Rabobank

FXstreet.com (London) - Research teams at Rabobank explain if the House of Representatives and the Senate fail to agree on a continuing resolution by midnight, the government will have to shut down partially tomorrow.

Key Quotes:

“This would lead to a loss in consumer demand, as government employees may decide to cut back on spending. It also means a drop in demand for goods and services from the federal government. The functioning of the economy will also be affected negatively, because crucial licenses and permits won’t be issued”.

“Indirectly, a government shutdown will also damage consumer confidence and business confidence. This may slow down consumer spending and business investment. If we look at the experience in the 1970s, 1980s and 1990s the median slowdown in GDP growth in the quarter of the government shutdown is 0.9 percentage point”.

“Unfortunately, this is not a government shutdown in isolation. The next fiscal policy deadline is less than three weeks away. On October 17, lawmakers need to raise the debt ceiling, otherwise the government will soon be in default. This would have much more severe consequences for the US economy and financial markets”.