The cloud of a potential government shutdown in 2023 has lifted, but not all is clear on the horizon. Goldman Sachs recently retracted its forecast for a U.S. government shutdown this year, yet warned of possible disruptions in 2024.
Shift in Predictions
Goldman Sachs recently dropped its previous forecast that suggested a U.S. government shutdown was likely in 2023.
The change comes due to new geopolitical risks and the election of a House Speaker.
The House Speaker’s Influence
Mike Johnson’s election as House Speaker has lessened the likelihood of a government shutdown. His leadership could play a role in keeping the government operational.
Why a Shutdown Seemed Likely
Previously, Goldman Sachs believed a shutdown for 2-3 weeks by the end of December was probable. This view was held by a team of economists led by Jan Hatzius.
Geopolitical events like the conflict in the Middle East and U.S. air strikes in Syria have changed the landscape.
Congress is now less likely to allow a shutdown that would also affect military operations.
The Military Angle
A government shutdown affects not only civilian operations but also military activities.
This fact makes Congress more cautious about allowing a shutdown, particularly in a tense geopolitical climate.
The likely temporary extension of the spending bill by the November 17 deadline will not solve the deep-rooted policy disagreements among lawmakers.
The Risk in 2024
Hatzius warns that there’s still “some risk” of a government shutdown in early 2024, especially if the government continues to operate on short-term spending bills.
The Domino Effect
If the government continues to run on short-term extensions, it will be harder for Congress to agree on a full-year spending plan.
This increases the chances of a shutdown in the future.
Impact on Federal Workers
If a government shutdown occurs, federal workers face furloughs or work without pay. This disrupts the lives of thousands of families across the nation.
Public Services Halt
Essential services such as social security and public healthcare could be affected. Many Americans rely on these services for their day-to-day living.
A government shutdown hampers economic activity. Small businesses that work with the federal government could face delays or cancellations of projects.
Financial markets don’t like uncertainty. A government shutdown, or even the risk of one, can lead to market volatility, which affects investments and retirement accounts.
What Can You Do?
Americans should prepare for the possibility, however remote, of a government shutdown by saving money and understanding which services could be affected.
While a 2023 shutdown now seems unlikely, it’s wise to consider the impacts of a potential 2024 shutdown. Having a financial cushion can make a big difference.
While the immediate threat of a government shutdown has been averted for now, uncertainties remain for 2024.
As always, being prepared and informed is the best course of action for Americans facing these unpredictable times.
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