Bloomberg Weekend Reading: Bracing for the ‘Irrational’ Government Shutdown

Barring a last-second miracle, the US government will shut down at midnight Sunday—a once-extreme measure that’s become increasingly common in a Washington drowning in political vitriol. This will be the 15th shutdown since 1981, but unlike most of those, this one isn’t a fight among Democrats and Republicans, but between far-right Republicans and the rest of their party. House Speaker Kevin McCarthy has bent over backwards to keep happy those extremists who, after 15 ballots, finally handed him his gavel (and could just as easily take it back). One of them, Matt Gaetz of Florida, has threatened to seek McCarthy’s removal if he doesn’t get what he wants on immigration and spending cuts (proposals that would be dead on arrival in the Senate). The White House, which says Republicans broke their promises from May when they almost triggered a catastrophic default, has told its staff to prepare for furloughs. Pain will be inflicted on millions of everyday Americans as federal workers and contractors across the country either stop work or work without pay. “Can you imagine you go to your bank and say ‘I’m not paying my mortgage’. I mean, that is what we’re doing,” BlackRock Chief Executive Officer Larry Fink said, calling the shutdown an “irrational” move by Republicans. Indeed, the public has blamed the GOP before and will likely do so again. “In no other country does the government routinely incapacitate itself for the sake of political stunts,” Bloomberg editors wrote. Less charitable was Representative Mike Lawler of New York. “It’s a clown show,” he said of his fellow Republicans. “You keep running lunatics, you’re going to be in this position.”

The looming shutdown comes at a potentially precarious time for the US economy. While federal debt payments can continue and people who are deemed essential (such as air-traffic controllers) still report to work, many other functions will be on pause. National parks will close, many paychecks will be on hold and food stamps could be delayed. Treasury Secretary Janet Yellen warned a shutdown would hurt American families and cause economic headwinds that could undermine progress toward a soft landing. That warning came amid the good news that the Federal Reserve’s preferred measure of underlying inflation rose at the slowest monthly pace since late 2020. Sustaining low monthly core price increases is vital to building confidence among Fed officials that their war on inflation can come to a close. And that’s something the bond market is hoping to see.