Why This US Government Shutdown Is Different

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This week’s episode of Trumponomics explores why the current US government shutdown may be different from previous iterations, why it may last longer than most and how it could end up triggering a recession.
With the shutdown in its second week, host Stephanie Flanders, head of government and economics, and her guests Matthew Glassman, senior fellow at the Government Affairs Institute at Georgetown University, and Anna Wong, chief US economist for Bloomberg Economics, discuss how this standoff is actually a deeper struggle over presidential power.
Democrats, the minority in both houses of Congress, took advantage of a rare moment of legislative leverage by refusing to fund the government unless Republicans lifted an Obamacare deadline that stands to leave millions without healthcare. But the refusal of Democrats to budge is also about a larger battle over Trump’s unprecedented, unilateral spending actions, the subject of litigation as clear violations of Congressional power under the US Constitution. The Trump administration, meanwhile, has been threatening to use the fight to advance its agenda of shrinking the federal workforce.
As this plays out, our guests note that the economy may end up being collateral damage. Wong warns it’s in a fragile phase, caught between recovery and recession, and each week of shutdown could shave 0.2 percentage points off quarterly GDP growth. She explains the shutdown’s impact on unemployment, and the longer-term threat of critical data collection halts, which can blind Federal Reserve policymakers as they approach key rate decisions.
If the shutdown continues past mid-October, the Fed may lack data like the Consumer Price Index and jobs reports, forcing it to “fly blind” into its late-October and December meetings. Wong predicts that uncertainty will push the Fed toward another 25 basis point rate cut as “insurance.”