Analysts see 40% chance of government shutdown this weekend, as House plans Tuesday vote

By Victor Reklaitis

House Rules Committee is due to take up Speaker Johnson's proposal in the late afternoon Monday, with the full chamber expected to vote on it Tuesday

A divided Washington could deliver a partial government shutdown after midnight Friday, but for now analysts are optimistic that the Republican-run House and Democratic-controlled Senate will be able to agree on a stopgap funding measure that prevents closures.

This week's negotiations among U.S. lawmakers are unfolding after ratings agency Moody's cut its outlook for the nation's credit rating to negative from stable at the end of last week, citing in part its doubts about the federal government's ability implement effective fiscal policies.

Over this past weekend, House Speaker Mike Johnson, the Louisiana Republican who became his chamber's leader just three weeks ago, unveiled a two-step measure for avoiding shutdown. His "laddered continuing resolution" aims to extend government funding for some agencies and programs until Jan. 19, and for others until Feb. 2.

The House Rules Committee is slated to take up his measure in the late afternoon Monday, and the full chamber is due to vote on it Tuesday. The Biden White House has criticized Johnson's plan as "an unserious proposal," while Senate Majority Chuck Schumer, a New York Democrat, last week promised to "continue talking to Republicans about finding a path forward on avoiding a shutdown that both sides support."

Below are some assessments from analysts, as the main U.S. stock indexes SPX DJIA COMP traded mostly higher Monday, with investors preparing for key inflation data and gauging the possibility of a shutdown.

The federal government is funded until midnight Friday because former Speaker Kevin McCarthy worked with House Democrats to pass a 45-day funding bridge on Sept. 30. McCarthy's maneuvers angered some hardline Republicans, who then led the drive to oust him.

-- "We continue to believe the likelihood of a government shutdown on November 18 is 40%, which is higher than other Washington watchers, but still not probable. ... Our sense is that Speaker Johnson's honeymoon with his caucus is coming to an end, but we believe he still has enough runway to get a 'clean' continuing resolution funding the government into January through the chamber. ... At the highest level, we do not believe this shutdown should be viewed as a material event for investors as it does not touch the third rail of the debt ceiling and any missed economic activity will be made up following the inevitable deal." -- BTIG's Isaac Boltansky and Isabel Bandoroff, in a note

From MarketWatch's archives (September 2023): What stock investors need to know about U.S. government shutdowns

-- "We continue to see the prospects of a shutdown this week as relativelylow (below 40%) and expect some Democrats to support the package, although the outlook remains opaque. The two-step laddered CR reinforces our view that it is in the political interest of the Republicans to avoid a shutdown and that Rep. Johnson likely has the conservative bona fides and credibility with the right flank to sell a compromise that is also supported by Democrats. Nevertheless, the punt delays until 1Q24, rather than resolves, the standoff over spending levels and priorities." -- Benjamin Salisbury at Height Capital Markets, in a note

-- "[W]e do not expect the government to shut down at the end of this week. ... Johnson's CR, while not delivering the spending cuts that fiscal hawks want, gives the House Freedom Caucus (HFC) a win at least on the details of the funding process. Year-end leadership-driven omnibus bills have become a boogeyman of sorts for conservatives, who dislike both high toplines and missed opportunities to have input in pushing funding cuts and policy riders. Johnson's proposed CR would punt the funding debate into next year, eliminating the chance of such an omnibus being pushed upon them against a Christmas deadline." -- Andrew Lokay at Beacon Policy Advisors, in a note

From MarketWatch's archives (September 2023): Here's how a U.S. government shutdown could affect you, from food aid to getting your passport

-Victor Reklaitis

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11-13-23 1242ET

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