Budget deadlock pushes US to face unpredictable chain of impacts

VTV.vn - The risk of the US government shutting down from October 1st is increasing due to the budget impasse, threatening to cause a chain reaction to the economy, finances and people's lives.

The White House in Washington, DC, USA. Photo: THX/TTXVN

The risk of a partial US government shutdown from October 1 is increasing as Democratic and Republican lawmakers continue to be deadlocked in budget negotiations, raising concerns about the chain reaction to the economy , financial markets and people's lives.

* Political deadlock and the risk of mass layoffs

The budget dispute comes amid deep disagreements between President Donald Trump and Democrats over federal spending. Republicans are determined to pass a seven-week temporary spending package without conditions, while Democrats want it tied to priorities such as protecting the Affordable Care Act (ACA) health benefits program – which Trump has repeatedly criticized. A recent meeting between the President and Democratic leaders in Congress broke down due to irreconcilable differences.

As the September 30 deadline approaches, the Office of Management and Budget (OMB) has sent out an internal memo telling federal agencies to prepare for mass layoffs if the government is forced to shut down. This is a major departure from previous shutdowns, when employees were typically furloughed and then paid back after the budget was passed. It is unclear whether the administration will continue with that policy this time.

* Financial market shock

Markets have generally reacted poorly to government shutdowns in the past. But this time could be different. Nomura analysts warn that a prolonged partial shutdown of the federal government would paralyze financial regulators and delay or cancel key economic reports, such as monthly employment and inflation data. Analysts say this would make it harder for the Federal Reserve to accurately assess the state of the economy and could force it to maintain current monetary policy for longer than expected.

Investors’ inability to accurately gauge the pace of the economic slowdown could lead to sharp volatility in the bond market, according to an analysis by TD Securities. Treasury yields could continue to rise as expectations of rate cuts strengthen, widening the gap between short- and long-term yields.

A prolonged government shutdown could also disrupt complex financial transactions and make it difficult for companies planning initial public offerings (IPOs) because approvals at the U.S. Securities and Exchange Commission (SEC) would be delayed, potentially slowing the recovery in the recently buoyant equity markets.

* Which agencies and services are affected?

Without a budget, all federal agencies and services not deemed “essential” would be shut down. Financial regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) would be reduced to bare minimum staff, halting market monitoring, investigating misconduct, and approving corporate filings.

Meanwhile, agencies that do not rely on congressional appropriations—such as banking regulators and consumer protection agencies—will continue to operate. Essential services like the postal system, Medicare and Medicaid, Social Security, and air traffic control will also continue to operate. Social Security alone—which will pay $1.6 trillion to 72 million beneficiaries this year—will not be interrupted because it is a mandatory program. Nearly 71 million Medicaid enrollees and 69 million Medicare enrollees will also continue to receive benefits.

Airlines are still operating, though employees may have to work without pay. The U.S. Travel Association estimates that the tourism economy could lose about $1 billion a week due to flight and rail disruptions and park and museum closures. The SNAP food assistance program is also considered mandatory spending, but could be disrupted if the shutdown lasts longer, as the Department of Agriculture is limited to 30 days of payments.

In contrast, “non-essential” jobs will be suspended, directly affecting thousands of federal employees and millions of residents. In previous shutdowns, many national parks were closed or kept operating at a minimal level thanks to state funding.

Since 1977, the US government has partially shut down 21 times. The longest lasted 35 days from December 22, 2018 to January 25, 2019 under President Trump. The second longest was under President Bill Clinton, lasting 21 days from December 16, 1995 to January 6, 1996.

If this stalemate continues, the impact will be more profound, with a series of employees at risk of being laid off instead of temporarily furloughed as before. The consequences will not only stop at the paralysis of the federal apparatus but also spread to financial markets, economic activity and the lives of millions of Americans.

Source: https://vtv.vn/be-tac-ngan-sach-day-my-dung-truoc-chuoi-tac-dong-kho-luong-100250926150503153.htm