U.S. Government Shutdown: Three Things to Know

The U.S. government partially shut down on October 1 after Congress failed to pass a funding bill. Robert Kahn, CFR’s Steven A. Tananbaum Senior Fellow for International Economics, highlights three things to know about the economic consequences of the current shutdown and looks ahead to the projected deadline for the U.S. government to raise its debt ceiling later this month:

• Fundamental Disagreements: Republicans and Democrats fundamentally disagree on spending priorities, and these discrepancies are unlikely to be resolved through a government shutdown, says Kahn. "The funding bill that eventually emerges from the current Capitol Hill showdown is unlikely to provide a long-term solution," he predicts.
• Limited Economic Effect: "A short shutdown will likely have a limited effect on the economy," Kahn says. Economists predict that the minimal growth reduction that might be felt during the shutdown will likely be reversed once the shutdown ends. However, the economic damage could be substantial if the crisis drags out, he cautions.
• Prelude to Debt Ceiling Debate: The shutdown could be the beginning of a long and destabilizing period of political confrontation, which will come to a head on October 17, when the United States government is projected to reach its current debt limit. "Without a debt limit increase, the government will not be able to pay all its bills and may default on its debt, with profound consequences for the U.S. and global economy," says Kahn.