Goldman Now Sees 60% Odds Of A Government Shutdown Lasting “Up To A Few Weeks”

Friday, January 19, 2018
By Paul Martin

by Tyler Durden
Fri, 01/19/2018

When we discussed Goldman’s preview yesterday of what to expect should the government shutdown tonight at midnight, we highlighted that according to Goldman, “the odds of a lapse in spending authority after Friday, January 19, stand at around 35%.”

One day later, and with the Senate set to vote on a stopgap bill which appears unlikely to pass, Goldman has nearly doubled its shutdown odds, and as of this morning, the bank’s chief economist Jan Hatzius said that there is now “a 60% of a government shutdown, in our view, lasting anywhere from a few days to a few weeks.” There is one alternative to a government shutdown that may last into February:

The alternative, which is almost as likely, appears to a short-term extension lasting several days. Each week of government shutdown would reduce Q1 GDP by 0.2pp (qoq ann.), but this would be reversed in the subsequent quarter. We expect any negative impact on financial markets from a shutdown to be very modest.

In this context, here are the latest observation points from Goldman’s political economist, Alec Phillips:

1. The outlook for the extension of federal spending authority has become murkier and the chances of a shutdown have increased. There appear to us to be three possible outcomes at this point:

4-week extension: Yesterday (Jan. 18) the House-passed a 4-week extension, to February 16. The first procedural vote on this bill passed in the Senate, but at this point there appears to be firm Democratic opposition to voting for the bill itself.

Short-term extension: An extension of a few days to as long as two weeks has been discussed as a possibility, and appears to be the most likely way to avoid a shutdown. Senate Democratic Leader Schumer indicated some openness to this on Jan. 18. That said, some Republican senators have indicated they would oppose it. It is also not yet clear whether Senate Republican Leader McConnell will allow a short-term extension to come up for a vote.

A partial government shutdown: If Congress fails to approve an extension of spending authority today (Jan. 19), a partial shutdown will come into effect. We would expect congressional leadership to work over the weekend to try to work out an agreement on immigration policy and the DACA program, which has been at the center of the debate.

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