Trump meets with congressional leaders in a bid to avoid a shutdown

A government shutdown is looming as federal funding is set to expire, prompting a high-level meeting to seek a breakthrough. Fiscal differences remain unresolved, with outstanding issues like the president's ability to unilaterally cancel spending, leading to distrust between the two sides. Healthcare is another significant point of contention, and while there are hopes for behind-the-scenes negotiations, expectations for a grand bargain are low, with some proposing short-term extensions.

The current situation highlights a broken budget process, with Congress repeatedly failing to pass budgets on time. A shutdown is seen as inefficient and costly, with past shutdowns, like the 34-day one in 2018-2019, estimated to have cost at least $3 billion. The threat of permanent employee dismissals during a shutdown is questioned, as it's not a proven cost-cutting method and could further disrupt government operations.

The inability to reach agreements stems from political differences and a paralyzed approach to the federal debt burden. Experts believe that without resolving these political divides, no process will force compromise. The historical precedent of shutdowns suggests that neither side typically wins, as the public often blames Washington for the dysfunction. The impact on economic data, crucial for the Federal Reserve's policy decisions, is also a significant concern, potentially leading to policymakers flying blind.

• A government shutdown is imminent as federal funding expires, with top congressional leaders meeting to resolve fiscal differences.
• Past government shutdowns have proven inefficient and costly, with the 2018-2019 shutdown estimated to have cost at least $3 billion to the national GDP.
• Threats of permanent federal employee dismissals during a shutdown are considered questionable and could further hamper government operations.
• The recurring failure to pass budgets on time demonstrates a fundamentally broken budget process.
• A shutdown could disrupt the release of crucial economic data, impacting the Federal Reserve's ability to make informed decisions on interest rates.

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Fiscal Differences Unresolved [0:00]

• A meeting is being held in the Oval Office to push for a last-minute breakthrough regarding unresolved fiscal differences.
• The meeting involves the president and top congressional leaders, including two Democrats and two Republicans.
• Expectations for a deal are currently low due to ongoing communication breakdowns between the two sides.
• Outstanding issues include "recisions," which is described as the president's ability to unilaterally cancel spending.
• There is a significant amount of distrust between the parties, with little evidence of compromise.
• Healthcare is another major point of contention.
• The expectation is that the meeting might be "political theater" for sides to criticize each other publicly.
• However, cameras may not be allowed in, potentially allowing for actual negotiation.
• A headline suggests a plan to avert a shutdown for only 7 days, delaying the issue into October.
• There are very few expectations that this issue will be resolved for the entire fall.

This is what all eyes are watching and the expectations at the moment are pretty low as to sort of how these two sides who continually are just talking past each other can come to a deal.

Government Shutdown Looming Again [2:10]

• A government shutdown is imminent as current federal funding is set to expire.
• The bill on the table would only fund the government through mid-November and must pass before October 1st to avoid a shutdown.
• This situation highlights that the budget process is fundamentally broken, as Congress has failed to get its budget done on time for the 29th consecutive year.
• Both the deadline to fund the government (October 1st) and the expiration of ACA tax credits have been known for a long time, yet Congress has not acted.
• The situation is described as going into the brink of a government shutdown with less than 48 hours left.

As you said, we've seen this play out before and we know generally what the consequences look like as the government shuts down. It's inefficient. It's costly. It's inconvenient for many businesses and consumers across the country.

Potential Economic Cost of a Shutdown [3:46]

• The exact economic cost is difficult to determine and depends on the specific contingency plans for shutting down the government, which have been delayed.
• Short government shutdowns are generally inefficient but do not have a large effect on the economy.
• However, if a shutdown drags on, like the one in 2018 and 2019 (34 days), it can materially impact the economy.
• The 2018-2019 shutdown was estimated to have cost at least $3 billion to the national GDP, which is not overwhelming but still costly.
• The pattern of shutdowns is something that needs to be avoided.

Roughly what we've seen in the past is that short government shutdowns are just inefficient. Don't have a large effect on the economy. When it drags on like the one in 2018 and 2019 did, that one lasted 34 days, then it can really start to materially have an economic impact.

Administration's Threat of Permanent Furloughs [4:51]

• Shutting down the government is not a way to improve the federal budget's fiscal status; only Congress enacting and the president executing savings can do that.
• A government shutdown results in paying government employees not to work, with about 40% of employees furloughed and eventually back-paid without performing government duties.
• This is not an effective way to cut costs, despite potential waste and inefficiency in the federal government.
• The idea of permanent dismissals during a shutdown is questioned, with it being noted that significant changes to the federal workforce have already occurred.
• It's questionable whether taking additional action and laying off additional employees during a shutdown is legal.
• Such actions could further hamper government operations and affect the employees impacted.
• Federal employees are spread across communities, and their absence affects local businesses and state/local governments that rely on federal services.

Shutting down the government is not one of them. We It never results in budget savings. The only way to produce budget savings is for Congress to enact those savings and the president to execute them.

Why We Keep Having Shutdowns [7:23]

• The recurring shutdowns are attributed to political differences, a broken governing and budgeting process, and an enormous federal debt burden that paralyzes action.
• There isn't a coherent process to address revenues and spending through bipartisan negotiations.
• Government shutdowns or debt limit crises are seen as the only pressure points.
• These methods are risky and inefficient, and a better way is needed.
• Ultimately, resolving political differences is necessary for parties to work together in the interest of the American people.

If we don't resolve our political differences, no process by itself is going to force the two parties to work together. So ultimately, we need both of them to be working in the interest of the American people.

Government Shutdown Odds and Public Blame [8:35]

• The odds of a shutdown were initially estimated at 60% chance of no shutdown, but shifted to a 60% chance of a shutdown due to recent developments, then back down to a lower chance of no shutdown.
• Reasons for lower odds include neither side going into the meeting to convince the other and Democrats finding it hard to execute their top issue (healthcare) during a shutdown.
• Historically, no one wins government shutdowns; they are often caught up in larger political events.
• Past shutdowns have not demonstrably helped the party perceived as the instigator.
• The American population almost equitably blames Washington for dysfunction.
• It's difficult for a unitary government that has played a strong role in the economy to blame Democrats for dysfunction.
• Democrats may want to highlight perceived bad healthcare policy from Republicans, but a shutdown shifts the focus away from policy.

No one wins these. The history shows of the five longest, uh, two of them happened in the 70s, they were caught up in Watergate. Those shutdowns helped Democrats in the midterms of 78.

Duration of a Shutdown and Data Impact [12:18]

• Due to the proximity of Yam Kapour, it would be very difficult to end a shutdown sooner than five, six, or seven days if it begins on October 1st.
• Once shutdowns begin, it's difficult to de-escalate, as partisans on each side may believe they are winning and want to inflict more pain.
• After about a week, payments start to slow, and constituents become concerned about benefits, leading to dysfunction.
• There isn't a defining issue that would force a shutdown instead of democratic debate and action.
• The threat of using a shutdown to permanently dismiss federal employees is viewed with skepticism, as similar actions have already been taken.
• A shutdown could highlight past layoffs and agency shuttering, which did not play well politically in February-March.
• Key economic reports, such as jobs and inflation data, could vanish if a shutdown occurs, taking with them critical signals for the Federal Reserve.
• This would make it difficult for the Fed to make decisions, especially regarding interest rate cuts, as they would be "flying blind."
• Private sector data, like ADP employment data, is not considered a sufficient substitute for official government data from the Fed's perspective.
• The Fed will likely look at how markets respond to a shutdown and their position going into the next meeting.
• If the Fed doesn't deliver what markets are pricing in (e.g., a rate cut), it could cause turbulence.
• There is still an inflation problem, and Fed speakers indicate an aversion to going too far with rate cuts.
• A poll of academic economists suggests a preference for Chris Waller to succeed Jerome Powell as Fed Chair, but few believe he will get the job, with Kevin Hassett seen as more likely.
• Former Fed officials unanimously prefer Chris Waller and express skepticism about Kevin Hassett, believing Waller would be more independent.
• Markets would likely feel comfortable with Waller, but Hassett would need to build credibility.