What a Looming Shutdown Means for Markets

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News, thirty six hours.

How far out are we thirty six houssy about thirty six hours.

Yes, not that I'm counting.

Not that you're counting. Meghan Scully heads up Bloomberg's coverage of Congress, and she says if the White House and lawmakers can't agree to a funding bill by midnight on Tuesday, the US government will shut down. Ahead of a meeting at the White House on Monday, President Trump and congressional leaders from both parties are staking out their positions. These people are crazy, the Democrats.

So if it asked to shut down, it love.

We don't want to shut down the government. It's Trump who's doing it, so ask him. What you have is everybody trying to shift the blame, like who is going to be the one responsible politically for a shutdown, which seems increasingly likely as the hours go by.

Meghan says the sticking points and negotiations come down to a couple key issues for Democrats.

They have decided to centralize their message here on healthcare. Rising ACA premiums. That's the Obamacare premiums that were kept at lower levels due to subsidies from the Biden administration. They're due to expire on January first. For Republicans, they are arguing that they want a so called clean stop

Government shutdowns have become more and more common, but Megan says this one, if it comes to pass, would be very different. Aside from the usual fears of furloughs and delayed economic data, the White House has called for using a shutdown as a way to eliminate thousands of federal jobs, which could have a big impact on the economy.

In the last several years, we have seen markets largely shrug off the effects of a government shutdown, and what makes this one potentially more durable then previous shutdowns is the threat of mass firings.

Last week, the White House asked government agencies for plans to lay off, rather than furlough, many non essential workers if the government shuts down.

If tens of thousands or hundreds of thousands of US government workers get laid off as a result of this shutdown, that means they do not get their back pay, they do not have jobs at the end of this that will have a longer term economic impact.

I'm David Gera, and this is the big take from Bloomberg News today on the show. As the US gets closer and closer to another government shutdown, what's up for negotiation, what isn't, and why this shutdown could have a more significant impact on markets in the economy than we're accustomed to. It's shutdown eve Eve, as Bloomberg's Megan Scully calls it. Democrats say they're not willing to budge on those Affordable Care Act subsidies. I asked Megan to explain why.

So they affect millions of Americans, and it would come with a bill of about three hundred and fifty billion dollars to increase these subsidies into the new year. That's a pretty hefty price tag, although it is something that Democrats say is necessary both you know, financially, but also economically. If a family's health insurance payments go up double triple in the new year, that obviously has widespread economic effects.

For Democrats, they see this as a.

Winning argument heading into the twenty twenty six midterms when they're hoping to reclaim control of the House, the Senate or both. And wrapped up in this broader healthcare debate is, of course, the Medicaid cuts that were part of the huge Trump tax bill that passed on the backs of Republican only support earlier this year. They're also demanding that these cuts get reversed.

I think that is.

Very unlikely to happen, but they are making it part of their broader messaging on this.

Given the fact that there are Republican voters who benefit from these subsidies, who rely on these subsidies, given the fact that this isn't just a blue state issue or a red state issue. Are there Republicans who down the line conceivably would be willing to negotiate around this.

Yes, absolutely, and Republicans have said that they are willing to negotiate on this come you know, November, but let's just keep the government open. Within the Republican ranks, you certainly have some who would be opposed to this, particularly I'm thinking of fiscal conservatives like the House Freedom Caucus, who don't want to be spending this money. But what Democrats are saying is this is their biggest point of leverage.

Republicans need sixty.

Votes in the Senate to pass the stop gap spending bill, and for Democrats, they have the most sway now then they would have on a standalone healthcare only bill, So they see this as the best chance to get most of what they want.

Where is President Trump on these negotiations. Is he in line with Republicans in the House and Senate or does he have kind of a different perspective here?

You know, last week he said, you know, if there's a shutdown, there's a shutdown, it'll happen.

Well, this is all caused by the Democrats.

He was supposed to meet last week with the Democratic leaders of the House and Senate that got canceled at the last minute. They are meeting today for the first time. The Republican congressional leaders will also be at this meeting. But we saw a little bit of a preview of that this morning with Carolyn Levitt, the White House spokesperson, really digging into the President's message and Republican's message writ large,

Megan says her expectations for how all of this will play out are based on years of reporting on pass shutdowns and near shutdowns. They've become increasingly common over the last few decades.

There have been four fourteen shutdowns going back to nineteen eighty one, which is when sort of the current the modern era of shutdowns began.

Before nineteen eighty one, all government employees still had to report to work when there was a shutdown, so the disruption to government services was minimal. The biggest impact was on government workers who didn't get paid.

The last shutdown we had was the twenty eighteen to twenty nineteen shutdown, the thirty five days shutdown during Trump's first administration, and the longest shutdown in US history. Since then, we have certainly gotten to the brink of a shutdown more times than I can count. Pretty much anytime there has been a funding deadline, it is at the eleventh hour that an agreement comes through. We saw that most recently in March, but we have not actually seen a shutdown now in nearly seven years.

But this shutdown, if it happens, could look very different from any of those fourteen previous shutdowns that's coming up. Last week, the White House sent a memo to federal agencies ahead of this looming shutdown saying it would quote use this opportunity to consider reduction in force, that it would lay off employees in government programs that don't align

So we don't know certainly exactly whose jobs are at risk. They did say, you know, programs that were not specifically authorized and jobs within the government that do not support Trump's broader agenda, both domestically and internationally. This is extremely, extremely unusual for a shutdown. Typically, what happens is most federal employees get furloughed. Some deemed essential must report to

Should we see that as the White House acting opportunistically or some other way? In other words, the White House could kind of do these layoffs in the way they have during the first few months of this the president's second term. Why is this the mechanism that they're thinking of using here.

Russ Vote, who is Trump's budget director, the chief of the Office of Management and Budget within the White House and also sort of the architect of Project twenty twenty five, which has been sort of the guiding principle of many of Trump's policies in his first term, is a firm believer in a strong executive and sees this as an

We've seen him win.

A lot of these arguments, a lot of these cases in court. But this is sort of a new way for him to go about this.

Thinking more about russ Vote's role here as the director of the Office of Management Budget, there's this more muscular approach to executive power. Certainly these layoffs potential layoffs are part of that. In the past, we've also relied on OMB for detail about what's supposed to happen if there is a shutdown, and I gather this time around, we're not getting a lot of clarity about the way that OMB is thinking about contingency planning.

Yes, so typically by this point on shutdown eve eve, we would have agency by agency documentation of what will happen who is considered an essential employee and who is not. Federal workers would start signing off on these shutdown plans, would be making their plans for when they leave work tomorrow if the shutdown does.

In fact go into effect.

It certainly feels like this is very late to the game, especially because under law, federal employees who are non essential need to start signing off on paperwork saying they will not be working during the shutdown.

Is there a risk that this government might not be ready to shut down by this deadline if they're not where they should be in terms of preparations.

For one, they don't really have a choice thanks to the Anti Deficiency Act. When the shutdown comes, the government is shut down. Aside from essential personnel, we already know sort of the broad contours of who are the essential workers. Active duty military is considered essential workers. Emergency workers like FEMA as well as air traffic controllers all considered emergency employees,

In March, the country faced another funding deadline. Senate Minority Leader Chuck Schumer warned that a shutdown would allow the administration to quote destroy vital government services at a significantly faster rate than they can right now. He ultimately decided to vote to fund the government to avoid that scenario, and he faced a lot of blowback for that decision from progressives within the Democratic Party. This time, Megan says, he's taking a very different.

Approach going back to March.

The last time we were at this funding stalemate, Schumer at the last minute decided that Trump, who was only two months into his second term at that point, was too powerful to risk it politically for the party, and so a minority of Democrats in the US Senate voted with Schumer to avert a shutdown. That immediately prompted blowback from progressives within the party who saw this as Senate

I'm very curious sort of what you see as potential off ramps here. So there is this meeting on Monday at the White House among congressional leadership and the President, with just hours to go here till funding runs out. How do you see this playing out or what are the ways in which it could play out in the next few hours.

I think that the most likely scenario here is that the government shuts down at twelve oh one am on

Megan.

How do you think about the potential consequences of all of this too, markets and the economy, and looking at those past hunt ends, we've talked about what impact have they had and when does it really become an issue for investors and for the US economy broadly.

So a shutdown is not the market rattling catas that say, a debt ceiling breach would bring about, but it certainly is disruptive, at least in.

The short term.

In the last several years, we have seen markets largely shrug off the effects of a government shutdown, and we have seen that in the run up to this one. What we could see sort of in the immediate aftermath of a shutdown is some short term market consequences and certainly some short term economic consequences.

For example, if there is a government shutdown, the jobs report won't come out on Friday when it's scheduled too.

That certainly is a huge indicator of where the economy is and where it's going, and not having that then has effects on what decisions people make in the short term, on their finances and on their investments. Typically, though, in a government shutdown, any economic effect or market effect is short lived, even during the thirty five day shutdown of twenty eighteen and twenty nineteen.

Again, that's for the typical government shutdown. But like we've been saying, this time could be different if the White House follows through on its plan to use the government shutdown as a way to further reduce the federal workforce. If those workers lose their jobs instead of merely being furloughed with back pay, the economic consequences of this government shutdown could have a much bigger impact. This is the