Congress has less than two weeks left to settle on a budget for the U.S. federal government before its Oct. 1 deadline—an issue that’s likely to dominate headlines and the political conversation. Investors shouldn’t overreact. This shutdown too shall pass.
“Government shutdowns tend to be high profile though low-impact market events,” wrote Truist Advisory Services’ co-chief investment officer and chief market strategist Keith Lerner on Tuesday. “While uncertainty around these events tends to heighten investor angst and adds to short-term market volatility, the historical evidence suggests a minimal lasting market impact.”
A one-month continuing resolution to start the federal government’s fiscal year is also possible, which would give Congressional negotiators more time to hammer out a compromise but sets up a new shutdown threat on Nov. 1—extending the uncertainty and adding to the short-term market volatility. There’s another wild card this time that relates to monetary policy. The Federal Reserve is in the late stages of its tightening campaign and is weighing its moves in real time. A government shutdown would leave the Fed flying blind, in the absence of official statistics from federal agencies.