Could The MAGA Shutdown Tip The US Economy Into Recession? Leaders, Analysts And Federal Reserve Speak

Written by Dana Sanchez

With the backdrop of slowing growth in China, a trade war and rising interest rates, the MAGA government shutdown could surprise economists and investors and tip the U.S. economy into recession.

The shutdown alone won’t make that happen, but with the other things going on, there is a growing risk if the shutdown goes on a few months.

We listened to what notable people have had to say about the potential impact of Trump’s shutdown. Here are some quotes from leaders, federal reserve officials and banks.


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Neil Bradley, executive VP at the U.S. Chamber of Commerce

Small business owners can’t get loans due to the shutdown

JPMorgan estimates the U.S. economy is losing more than $1.5 billion a week because of the shutdown — a fraction of the $20-trillion economy — but businesses are becoming collateral damage, Washington Post reported. As the shutdown drags on, there’s a domino effect with companies that aren’t getting loans or payments unable to pay other companies.

“I’ve got a couple of words for Donald Trump. Tell him to give me a call,” said Brooks Troxler a small-business owner in North Carolina who voted for Trump and now can’t get his loan to buy a piece of land. The seller gave Troxler a few more days to come up with the money, but Troxler heard that big businesses such as AutoZone are calling the property owner and offering cash.

“As we are hearing every day from businesses across the country, the adverse consequences of the shutdown are wide and growing,” wrote Neil Bradley, executive vice president at the U.S. Chamber of Commerce, in a letter to Congress. “With each passing day, the situation will only get worse.”

A President Donald Trump supporter wears a cheese head hat promoting the Make America Great Again slogan before a rally Wednesday, Oct. 24, 2018, in Mosinee, Wis. The rally will feature President Trump, Wis. Gov. Scott Walker and Senate Candidate Leah Vukmir. (AP Photo/Mike Roemer)

Charles Wheelan, author of “Naked Economics: Undressing the Dismal Science”

Why Isn’t Wall Street more alarmed by the government shutdown?

“To me, the shutdown is the part of the iceberg that’s just above to surface and there’s so much lurking below,” said Whelan said in an interview with Alexis Christoforous of Yahoo Finance. “What’s just below is this sense that government just can’t get things done and that extends far beyond the shutdown to things like entitlement reform, artificial intelligence — there’s so many things below the surface of the water.

“I’m amazed that people aren’t more alarmed by it … (Immigration) is a complicated topic. Reducing it to a wall is what has led us to this unproductive stalemate … I think Trump has a narrow conception of how the economy works. He has a business background, he has a real estate background, where this is often a very zero-sum kind of situation. Most economic topics, however, are positive-sum, where if you do things right, it’s additive.

“I think when you bring a zero-sum mentality to a positive-sum situation, that’s when you end up in a shutdown.”

Fitch, one of the Big Three credit rating agencies

Fitch warns about damaging U.S. sovereign credit rating

The political dysfunction underlying the shutdown has the potential to damage to the U.S. government’s triple-A credit rating, Fitch Ratings warned in a press release

“The ongoing shutdown suggests that the current arrangement of political forces, following November’s midterm elections that resulted in a divided Congress, limits policy consistency,” the ratings firm said. “The main implication for our U.S. sovereign credit view will depend on whether we feel this shutdown foreshadows a more pronounced destabilization of fiscal policymaking, including brinkmanship over the debt limit,” Fitch added.

Kevin Hassett, chairman of the Council of Economic Advisers

The jobs report could take a hit from the shutdown

Trump has promised “a shutdown that will last for a very long time” if he doesn’t get his way with the Senate on a spending bill that includes funding for a border wall between Mexico and the U.S. That’s not something that would normally have a big long-run effect, “but for sure if we had a long government shutdown then it might show up in the jobs report,” said Kevin Hassett, chairman of the Council of Economic Advisers in a CNBC interview.

Unemployment is at its lowest since 1969 and wage growth is up. Job growth exceeded expectations in October but was underwhelming in November amid fears that the economic expansion is slowing down.

J.P. Morgan and Bank of America Merrill Lynch economists

Moving into unchartered territory

J.P. Morgan economists cut their first-quarter growth forecast by a quarter point to 2 percent because of the shutdown. Bank of America Merrill Lynch economists took 0.1 percentage point off fourth-quarter growth, bringing that forecast to 2.8 percent, due to the shutdown, CNBC reported. BofA economists said their forecast for 2.2 percent first-quarter growth could be reduced if the government stays closed.

Donald Trump

A wall can’t be immoral if the Vatican has one

Trump said the shutdown will last “as long as it takes” to get $5.6 billion for the border wall, according to Daily Beast.

The president insists that walls “work 100 percent,” and that’s “never going to change” because a “wall is a wall.” He cited the Vatican’s wall, which he said is the “biggest wall of them all.” Building a wall is really about “health and wellness,” Trump tweeted, and it can’t be immoral if the Vatican has one.

Brett Ryan, a U.S. economist at Deutsche Bank AG

Shutdown worries help push U.S. recession risk to 6-year high

If the economic expansion that began in 2009 lasts until July, it will be 10 years of expansion — the country’s longest on record, Bloomberg reported. The federal government shutdown isn’t the only variable at play threatening. There are also growing concerns from financial markets and a trade war with China.

“The government shutdown weighs on business confidence and could weigh on consumer confidence,” said Brett Ryan, a U.S. economist at Deutsche Bank AG. “It’s not our call that there’s a recession coming soon by any means, but financial conditions have tightened materially over the past two months, you have ongoing trade issues that are weighing on global growth, and you’re seeing business confidence waning a bit.”

Federal Reserve Chairman Jerome Powell

A top U.S. economic policymaker sees no deep downturn this year

The Fed is more concerned about weakening growth in China and Europe than the government shutdown, said Federal Reserve Chairman Jerome Powell, according to a Washington Post report. However, Powell warned that a prolonged U.S. government shutdown could be a drag on the economy. An extended shutdown would have an impact on the economy that “would show up in the data very clearly,” Powell said.

Powell also said it’s a problem that the Commerce Department is mostly shut down. That means key economic data such as retail sales and GDP growth won’t be released this month unless the government reopens. That makes it harder for the Fed, investors and government officials to know how the economy is doing. And the regular America people.

Atlanta Fed Chairman Raphael Bostic

Lack of government data during the shutdown makes it harder for the Fed to do its job

The Department of Labor will stay open through the shutdown thanks to an earlier congressional spending agreement, but the Department of Commerce is closed, along with the Census Bureau and Bureau of Economic Analysis, Axios reported.

The partial government could mean just one interest rate hike this year instead of the two outlined at the Fed’s most recent meeting, said Atlanta Fed Chairman Raphael Bostic.

 

 
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