With a government shutdown looming next week and no clear solution in sight, failure to reach a deal, or even a short-term stopgap spending bill, could push key issues onto the back of the critical debt ceiling showdown in mid-October when legislators debate raising the nation's borrowing limit, an expert said.
"All the things we are debating over the shutdown could carry over to the debt ceiling," said Nigel Gault, co-chief economist at the Parthenon Group.
Stocks fell yesterday for the sixth day out of seven, ending the week with a decline as investors watched while Democrats and Republicans battled over the spending bill and Obamacare. The U.S. Senate passed a spending bill that has little chance of passing in the House, where Republicans oppose funding in the measure for the health care law.
President Obama yesterday called on House Republicans to put aside their differences.
"House Republicans will have to decide whether to join the Senate and keep the government open, or shut it down just because they can't get their way on an issue that has nothing to do with the deficit," Obama said.
Congress will work through the weekend, but it's unclear if it can come to an agreement before the midnight deadline Monday.
If the government shuts down, it will have an "irritating" effect on the economy, Gault said.
About 800,000 nonessential government workers would be furloughed, resulting in the closure of national parks and monuments, among other departments. And the jobs report scheduled to be released next week may not come out, according to the Bureau of Labor Statistics. In the 17 government shutdowns since 1976, the markets have not plunged — the average decline in the Standard and Poor's 500 index for a shutdown lasting more than 10 days is 2.5 percent.
Hitting the debt ceiling, however, would be "catastrophic" and uncharted territory, opening the possibility of the government defaulting on its debt, Gault said.
"The potential impacts are far more severe," he said. "It's going to cut federal spending overnight by 20 percent."
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