Government shutdown threatens in the US

The chances of a last-minute deal that could prevent public sector closures in the U.S. are diminishing. House Speaker Kevin McCarthy, who extracted concessions from the Biden administration last spring on long-term spending cuts, has made difficult demands to the White House. McCarthy has demanded that the wall on the Mexican border, which began construction during Donald Trump’s term, be completed, that no new aid be provided to Ukraine, and that further cuts in federal spending be made. No agreement is expected over the weekend on these demands. The fact that no financial turmoil occurred in previous shutdowns and that Republicans disagree among themselves on these demands strengthens the Biden administration’s hand. On the other hand, Fed member Neel Kashkari said that a government shutdown could slow the economy, and that they might not need to use the interest rate hike tool in that case. Kashkari’s base case scenario still calls for another rate hike this year.