Institute Alert

• Opposition to the latest congressional resolution to extend government funding has derailed the bill, making a partial shutdown likely after December 20.

• A revised bill is likely around year-end. We expect a very limited and temporary economic and market impact.
• We favor maintaining current portfolio positions.

House of Representatives Speaker Mike Johnson was disappointed on Thursday when an eleventh-hour continuing resolution to extend federal government funding failed under opposition from Republicans, including President-elect Trump.¹ The issue was the large amount of new funding. We doubt there will be a new agreement in time to avert a partial shutdown after December 20, but we expect a new spending bill around the end of the year. A revised bill is likely to retain the prior bill’s funding extension to farmers and disaster assistance to hurricane-damaged states while cutting some of the other spending measures in the failed resolution.

Even if a shutdown occurs, we believe there is likely to be little economic or financial-market impact. Any shutdown would affect discretionary spending, not Social Security or Medicare payments. Discretionary spending is a relatively small portion of total federal spending, and in our view, a short shutdown is likely to be easily recovered through catch-up payments once a new resolution is in place.

This legislative stumble sets up a new debate around the budget and the debt-ceiling increase early in 2025. Financial markets are likely to watch carefully how congressional leaders manage their thin majorities in 2025. It may take longer to raise the debt ceiling and to extend those provisions of the 2017 tax cuts that expire at the end of 2025, but we believe the new administration will press its political momentum on Congress to secure both next year. We continue to foresee a strong economy heading into 2025 — we maintain our outlook for earnings growth and an S&P 500 Index target range of 6500 – 6700. We are making no changes in guidance and prefer to look through any shutdown.

¹ Kaia Hubbard and Caitlin Yilek, “Government shutdown looms after House conservatives revolt over GOP-backed spending bill,” CBS News, December 19, 2024.

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