Couples Therapy, Republicans and Democratic lawmakers are at a standoff

Wolf Research believes a looming U.S. government shutdown now seems to be “very likely,” as both Republican and Democratic lawmakers look “apparently comfortable” with their positions in an ongoing standoff, according to analysts at Wolfe Research.

In a note, the analysts led by Tobin Marcus predicted that, with Democrats facing a “strong political imperative to fight rather than fold” and Republicans seeing “no reason” to offer concessions on a short-term funding bill, a potential shuttering of the federal government could last for more than one week.

They added that the economic ramifications of a shutdown would be “temporary,” but flagged that the effects may become “meaningful” if a closure lasts for an extended period. Pointing to a government analysis of the longest-ever shutdown, which took place over 35 days in 2018-19, the Wolfe strategists flagged that it both dented quarterly growth and raised the unemployment rate.

“That was a partial shutdown, with some agencies already funded, so the per-day impacts this time could be slightly larger, but this is the ballpark of impact that investors can expect from a protracted shutdown — although we would go way under 35 days for the expected duration of the impending shutdown,” the analysts said.

Lawmakers face a deadline to agree by October 1 — the start of the new U.S. fiscal year — on a new stopgap spending bill to keep the government open, with Republicans needing support from some Democrats in order for the legislation to pass through a deeply divided U.S. Senate.