The Risk of U.S. Government Shutdown: Threatening Recession and Worker's Pay

Economists believe that a brief government shutdown is unlikely to significantly slow down the U.S. economy or push it into a recession. However, a prolonged shutdown could negatively impact growth and potentially affect President Biden's re-election prospects. Previous shutdowns have shown that they dampen consumer confidence and spending, but the economy tends to recover once the shutdown ends. Estimates suggest that a shutdown could reduce growth by 0.2 percentage points per week, but growth is expected to rebound in the quarter after the shutdown. A long shutdown could also delay the release of important government data on the economy, potentially affecting the Federal Reserve's decision-making on interest rates. While the economy is currently healthy enough to absorb a temporary hit, a prolonged shutdown lasting several weeks could raise the risks of a recession.