Shutdown Showdown Adds New Question Mark To Already Uncertain Economy

Senate Democrats’ threats to shut down the federal government have added another unknown to a policy outlook clouded by President Donald Trump’s chaotic trade wars.

A showdown over shutting down the government heated up Wednesday when Senate Minority Leader Chuck Schumer, a Democrat from New York, said Republicans do not have enough votes to pass a stopgap funding measure keeping the government open until September. Senate Republicans need at least eight Democrats to support them in getting the budget passed.

The resolution was passed by Republicans in the House of Representatives in a mostly party-line vote without input from Democrats. The current short-term funding measure expires on March 14, leaving lawmakers with a short deadline.

If lawmakers don’t reach a deal, many government services and offices would close, and workers sent home, while some functions, such as sending out Social Security checks, would continue. The government shutting down while one party controls the House, Senate, and White House would be a historical first.

Odds of the government shutting down over the weekend shot up to 44% Thursday from 17% on Tuesday, according to Polymarket, a betting website. The renewed shutdown tensions added another dose of uncertainty to an economy already facing an unusually cloudy policy outlook.

Trump’s on-again, off-again tariff threats shook up markets earlier in the week, leaving businesses and individuals unsure how much the new import taxes will push up prices for consumer items and manufacturing components.

Other major unknowns include how much Trump will follow through on his threats to deport millions of immigrants or how deeply he and his advisor Elon Musk will cut government spending and services. Uncertainty about federal policy tends to damage the economy because it discourages businesses and households from making major investments and purchases until they know how the open questions will be resolved.

Against that backdrop, the back-and-forth over a shutdown added yet another X-factor to consider.

The Latest Standoff

Behind the scenes, Democrats are grappling over whether to vote to keep the government open or use a shutdown threat as leverage to extract concessions from the Republicans. Although Republicans have majorities in the House and Senate, Democrats have enough votes to block legislation with a “filibuster.”

The dilemma for Democrats is that they would like to restrain Trump and his cost-cutting advisor, Elon Musk, from continuing their controversial campaign of rapidly cutting federal spending and workers without the say-so from lawmakers. But their only leverage to do so would be shutting down, at least temporarily, the very services they are attempting to save.

On Thursday, Schumer asked Republicans to pass a “clean” resolution keeping the government open for 30 days while keeping spending at current levels, buying time for more negotiations over a longer-term deal.