How the shutdown ends

The economics team at Bank of America Merrill Lynch have a note out saying that it’s easier to predict how the government shutdown will end than to predict when it will end.

To date, the shutdown is the second longest on record and will be the longest if it remains shuttered through January 12th which seems quite likely.

The most likely outcome will be to return to the bipartisan deal that was struck by Congressional leaders before the new year which included some money for border security in return for funding the rest of the government through the fiscal year. When that deal comes about will depend on how much pain the Trump administration is willing to tolerate. There are various pain points that will be felt shortly in coming days and weeks: government workers affected by the shutdown will miss their first paycheck this week, tax refunds may see delays or not go out at all. All could lead to a compromise.

Ethan Harris et al note that the rule of thumb for shutdowns is something like a 0.1 or 0.2 percentage point drag on economic growth each week, so estimates for GDP are not materially coming down quite yet.

Source:

Government shutdown: 20 days and counting…
Bank of America Merrill Lynch – January 10th, 2019