When Will Congress Vote on the 2024 Budget?

Key Takeaways:

• Congress must approve a new budget for Fiscal Year 2024 by October 1 to avoid a government shutdown
• Lawmakers remain unable to agree on a new budget, making a shutdown increasingly likely as the deadline draws near
• Although a government shutdown would affect hundreds of thousands of government workers and services, the stock market and economy have historically remained relatively unaffected during previous shutdowns

U.S. lawmakers remain in a deadlock as they struggle to come to an agreement regarding the budget for Fiscal Year 2024. If a budget is not passed by October 1, the Federal Government will be shut down for the seventh time in the past twenty years.

Currently, the House, which historically takes the first steps on the spending bills, remains divided and has not yet come to a consensus on an updated budget.

Due to the lack of consensus in the house, the Senate is breaking with tradition and formulating its own stopgap bill in an attempt to avoid a shutdown. The Senate is set to vote on the bill at 5:30 pm on Tuesday.

If the bill passes, House Speaker McCarthy will be in a tough position as his party members push him to reject any measure that does not align with conservative policy. McCarthy has also been subject to threats from other Republicans that failure to do so could lead to his being ousted as Speaker of the House.

What happens if the government shuts down?

During a government shutdown, all non-essential government work is halted, and most non-essential workers are furloughed. Essential branches, such as the FBI, the military, and Social Security, Medicaid, and Medicare would continue mostly as normal, although some divisions would furlough many of their employees — the SEC, for example, would be expected to furlough about 90% of its staff.

Meanwhile, federally funded scientific research would be delayed, and national parks and museums would close.

Although a government shutdown would be harmful to the economy, it is unlikely to cause significant damage unless it lasts for an extended period of time. Goldman Sachs estimates that economic growth would decrease by 0.2% for every week that the shutdown continues, but it would then return to normal levels when the government opens again. Over the past 20 shutdowns, GDP continued to grow at 2.2%, according to Morgan Stanley.

The travel and tourism sector would be expected to be hit among the hardest, as the closure of national parks and museums would reduce demand for tourism. The U.S. Travel Association, an NGO representing the travel industry, estimates that a government shutdown would cost the industry $140 million per day.

More broadly, Moody’s Investors Service, one of the three major credit rating agencies alongside Standard and Poors, noted that a shutdown could affect the United States’ AAA credit rating.

How will the markets react to a government shutdown?

Although it’s impossible to predict how the stock market will react if a deal isn’t reached, historical data indicate that the market usually stays relatively resilient during shutdowns.

Morgan Stanley notes that the S&P 500 Index gained 4.4% on average over the past 20 shutdowns, indicating that the effects on the markets were minimal.

Stocks of companies that are involved in tourism and travel may be affected more greatly due to the closure of tourist attractions that would occur. Morgan Stanley stated that equity investors may want to look towards healthcare and defense stocks, which have grown at 2.3% and 5.2% respectively during shutdowns since 1995.

The bottom line

On Tuesday, the House will vote on four spending bills, and the Senate will vote on a stopgap bill. If an agreement isn’t reached between the two bodies of congress by the beginning of Fiscal Year 2024 on October 1, the government will shut down, resulting in the temporary cessation of many non-essential government services and the furloughing of thousands of government employees.

The economy and the markets are expected to remain relatively stable if this does occur, with some sectors, such as travel and tourism, being affected more than others.