Daily Insight Threat of a US government shutdown
Group Economics Macro & Financial Markets Research Maritza Cabezas, Peter de Bruin, +31 20 343 5619
23 September 2015
We expect Republicans and Democrats to reach an agreement and avoid a US government shutdown A less likely scenario is that US Congress passes a continuous resolution to extend funding Turkey’s central bank keeps monetary policy tight, though policy in Hungary stays extremely loose
New deadline approaching for a US government shutdown Democrats and Republicans have longstanding differences on
Turkish Central Bank has pushed up interbank rates
spending priorities. Despite the Republican majority, Republicans lack the votes to pass the spending bill they want in the Senate. If an agreement is not reached by September 30
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when the Federal spending authority expires, then they will
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need to pass a continuous resolution to avoid a government
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shutdown. This allows funding to be extended at current levels and removes the urgency of Congress to resolve the differences for a set amount of time.
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One of the major issues in debate is Planned Parenthood and
11 12 Benchmark repurchase rate
its funding. Republicans want to strip federal funding from this
One-week interbank rate
Issues in debate that could potentially cause a shutdown
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13 14 15 Overnight lending rate
program, which Democrats support. On top of this, there are the usual differences, democrats want to increase the cap on
Source: Thomson Reuters Datastream
spending in domestic programs for unemployment benefits and other welfare payments as well as education, infrastructure
Turkey’s central bank keeps monetary policy tight
and environmental protection. Meanwhile Republicans are
Turkey’s central bank (CBT) kept its monetary policy rates
opposed to more domestic spending.
unchanged and maintained a tight liquidity stance during its meeting. In response to the slide in the lira and high inflation, it
Economic impact of a shutdown
has pushed interbank rates to the upper bound of its interest
A less likely scenario of a shutdown of government agencies
rate corridor. We think that the CBT will continue this policy,
will cause some uncertainty, but we expect it to be short lived.
though expect policy rates to be raised as well when the Fed
In 1995 and in 2013, the economic impact of the shutdowns
starts its tightening cycle and pressure on the lira intensifies.
was not meaningful and was rapidly reversed in the next months. The major costs are related to the interruptions to
Policy in Hungary and the Czech Republic extremely loose
business as federal employees that are not considered
The Hungarian Central Bank (MNB) kept its policy constant
“essential” stayed away from work, for instance National Park
too. But, at 1.35%, policy is extremely loose. Inflation has
Services. Moreover, in contrast to 2013, there is no risk of an
started to pick up, but should remain below the central bank’s
overlap with the debt ceiling. Overall, the fiscal viability is more
target for an extended period. Policy tightening will therefore
solid now than during the previous episodes and a shutdown is
most likely have to wait until 2016H2. The situation is more or
more likely to be avoided.
less similar in the Czech Republic. The CNB is likely to keep policy also constant during this Thursday’s meeting. However,
Fed’s rate decisions not influenced by shutdown threat
given the renewed fall in inflation, the CNB-board is likely to
Chair Yellen mentioned during the press conference after the
send a dovish message. In addition, it may discuss introducing
FOMC meeting last week that the threat of a shutdown “played
negative policy rates to alleviate pressure on the FX floor and
no role” in the central bank’s decision to delay the rate hike.
lessen the current sharp pace of FX reserve accumulation.
We think that this will not be a concern for the upcoming
That said, the sound economic performance should help
December FOMC meeting, since we expect Republicans and
inflation over time to pick up, and we would be surprised if the
Democrats to reach an agreement beforehand.
CNB opts for more stimulus.