America’s economic woes could soon worsen if Congress fails to pass emergency funding legislation to prevent a government shutdown.
Republicans narrowly pushed a continuing resolution (CR) through the House on Tuesday, which extends government funding to the end of September.
The party holds a slim 53-seat majority in the Senate, shy of the 60-vote “supermajority” needed to advance the bill through the upper chamber, meaning it is now up to the Democrats to pass the stopgap measure. However, the party has given mixed signals on whether its members will offer their support. Democratic leadership has even suggested separate legislation for a one-month extension to allow budget negotiations to continue.
Why It Matters
As well as decreased and delayed government services and the furloughing of federal employees, a shutdown could add to mounting concerns about America’s near-term economic future.
Fears over a recession have heightened in recent weeks due to tariff-related volatility in the stock market, gloomy economic indicators, and other warning signals from leading financial institutions.
Could A Government Shutdown Cause A Recession?
Although the disruptions to government services would be significant, a shutdown would unlikely directly cause a recession. However, experts told Newsweek that if the shutdown is prolonged, it could exacerbate the challenges facing the American economy and existing fears about this scenario.
“A possible U.S. government shutdown, while obviously disruptive if persistent over a protracted period, is unlikely on its own to trigger a recession, particularly given that past shutdowns have typically been short-lived,” said Pushpin Singh, managing economist at the Centre for Economics and Business Research (CEBR).
“That said, if the purported shutdown lasts significantly longer than past instances, it will compound the headwinds currently afflicting the U.S. economy and place greater downward pressure on economic growth, not least due to lower government spending and spillover effects on activity more broadly,” he added.
“A shutdown will contribute to the likelihood of a recession in terms of the uncertainty it would create, on top of the mountain of uncertainty other policies such as tariffs, tax expirations, the current budget process, and exploding debt are already creating,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), a nonprofit fiscal watchdog.
“Government shutdowns have not historically increased risk of recession,” Diane Swonk, chief economist at KPMG, told Newsweek.
However, she said that a shutdown would add stress to government services and contribute to decreased economic confidence, which has already been revealed in recent weeks.
According to the latest data from The Conference Board, a New York-based business research firm, the Consumer Confidence Index declined by 7.0 points in February, its steepest monthly drop since August 2021. Meanwhile, the percentage of consumers expecting a recession within the next 12 months rose to a nine-month high, with just over 67 percent believing this to be somewhat or very likely.
Singh said that the most pronounced impact of a government shutdown would be this adding to “the uncertainty already weighing on the U.S. economy, potentially dampening business and consumer confidence.”
“It would also disrupt key economic data releases, which are essential for policymakers, including the Federal Reserve, as they assess economic conditions and set monetary policy,” he added. “This lack of data could complicate decision-making at a critical time, with implications for the broader economic outlook in the months ahead.”
What People Are Saying
JPMorgan analysts, in a December 2024 market update: “While Washington may be in turmoil as politicians haggle on how to fund the government, history shows that the financial and economic impact tends to be very short lived.”
Democratic Senator John Fetterman told CNN on Wednesday: “If you refuse to, or if you withhold your vote, you are voting [for] shutting the government down.”
Fetterman continued: “Now it’s a [continuing resolution] that we all agree we don’t like, and we don’t co-sign on all of those elements, but for me, we can’t ever allow the government to shut down.”
CRFB President Maya MacGuineas told Newsweek: “The budget process hasn’t worked in years. Lawmakers miss every single deadline, and there is no accountability for failure to meet them. Furthermore, there are no constraints in how much they can borrow, and they treat the process as an opportunity to score political points rather than to set out the plan for the country.
“Add to that the debilitating adversarial nature of our government, and you have a fiasco—which is what we have. We need to fix our budget process, but more importantly, we need to fix our partisanship and polarization if we are going to budget in a way that helps the country.”
Economist Pushpin Singh told Newsweek: “Given the significant economic and political implications, along with recent weakness in the U.S. economy, Congress would likely have strong incentives to pass a stopgap measure this time around, as has been done in recent years.”
Speaker of the House Mike Johnson, Wednesday on X, formerly Twitter: “The House has done its job and passed a clean CR to fund the federal government. If Senate Democrats block an up-or-down vote on this, then it’s crystal clear: THEY want to shut down the government. Period. Full stop.”
Economist Gary Hufbauer, on whether a shutdown would add to the fears over a U.S. recession, told Newsweek: “For sure…Even it only lasted a fortnight, a shutdown would be a big negative.”
Senate Minority Leader Chuck Schumer, Wednesday on the Senate Floor: “Funding the government should be a bipartisan effort, but Republicans chose a partisan path, drafting their continuing resolution without any input—any input—from congressional Democrats. Because of that, Republicans do not have the votes in the Senate to invoke cloture on the House CR.
“Our caucus is unified on a clean, April 11 CR that will keep the government open, and give Congress time to negotiate bipartisan legislation that can pass. We should vote on that.”
Diane Swonk, chief economist at KPMG, told Newsweek: “We have seen an erosion in trust in our government that has occurred over the course of decades. Trust is the ingredient that allows us as human beings to move forward through uncertain times. Given the divisive nature of our politics, a shutdown could deal a further blow to trust or could boost it. Unclear.
“Government workers lose pay but are paid in arrears after a shutdown is over. Do they see a closure as a strike and provide hope they may have their jobs when they return, or does it add insult to the blow they have already suffered? That is hard to answer, much like all else these days.”
What Happens Next
Government funding lapses at midnight on Friday, giving Congress under two days to muster the necessary votes from Democratic senators to avoid a shutdown.
If they fail, nonessential government services will be paused, with federal workers furloughed or made to work without pay. Essential services, such as national defense and law enforcement, will continue, but delays and disruptions will likely affect various public programs and services.
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