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US: Risk of a partial government shutdown is elevated - Wells Fargo

"While Congress has been consumed by tax policy legislation, there has been little mention of the impending December 8 deadline to fund the government. Time is short, and the policy differences are quite large," argues Wells Fargo Research Team.

Key quotes

Given the short timeline to enact legislation and the vast differences on immigration issues, we assign a 40 percent chance of a partial federal government shutdown. The economic impact of a partial shutdown, as long as it does not span two quarters, would likely be minimal given that the dip in activity and subsequent rebound would be contained in one quarter. While the probability of a shutdown is elevated, we expect a short-term funding bill (continuing resolution) to be passed before the deadline.

We have been estimating since September that the final passage of any tax package is not likely until the first quarter of 2018. One of the key reasons behind our thinking was this legislative deadline to keep the government funded. This Tuesday the Senate Budget Committee will take up the tax bill. Should it pass the committee vote, it would then head to a full floor vote in the Senate. Assuming the Senate then passes its version of the tax bill, the House and Senate will then need to assign a conference committee to work out the differences between the two plans.

With the funding bill sandwiched in between Senate passage of its version of the tax bill and the conference committee, along with the fact that there are just four legislative days scheduled in the House on the other side of the December 8 funding deadline, we maintain the view that should a tax package pass both houses of Congress, it will likely be in Q1-2018.

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