LIVE MARKETS-Government funding standoff could threatens Fed's data window

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GOVERNMENT FUNDING STANDOFF COULD THREATEN FED'S DATA WINDOW

Investors are growing increasingly concerned about the rising risk of a U.S. federal government shutdown, which could begin on Oct. 1 if Congress fails to pass a funding resolution.

U.S. President Donald Trump on Tuesday scrapped a meeting with top congressional Democratic leaders to discuss government funding, increasing the possibility of a partial government shutdown beginning next week.

The federal government has partially shut down 14 times since 1981, but it is unclear which operations would continue or close next month if government funding runs out, since the Office of Management and Budget has not made contingency plans public.

Mandatory spending would continue, such as Social Security and Medicare benefits, as would interest payments on the federal government's $37.5 trillion in debt.

While the direct economic impact of a short shutdown may be limited, economists warn that delays to key data releases could stir market volatility. Berenberg economist Atakan Bakiskan said a one-week shutdown could trim annualised real GDP growth by 0.1 percentage points. More concerning, he said, is the potential delay of the September jobs report and CPI inflation data, both due in October.

"If a shutdown occurs, the White House will likely categorize the Bureau of Labor Statistics and its employees as non-essential," Bakiskan said. "This means the September jobs report and CPI inflation data might not be published on time."

The Federal Reserve is expected to rely on these data ahead of its October rate decision. Any delay could complicate its policy outlook and unsettle markets.

Wells Fargo noted that most shutdowns since the 1980s have been brief and had little economic impact. However, the 2013 and 2018–19 episodes were more disruptive. The 2018–19 partial shutdown lasted 35 days, the longest on record, and reduced GDP growth by 0.1 percentage points in Q4 2018 and 0.3 points in Q1 2019, according to the Bureau of Economic Analysis.

Bakiskan added that the broader impact on sentiment could be more damaging. "The ensuing uncertainty and chaos would dent consumer and business sentiment," he said. "These indirect effects could potentially harm growth and the labor market, which the Fed is laser-focused on right now.

(Medha Singh)

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