"The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement"
- The Federal Reserve
After Treasury Secretary Jacob Lew's comments that shed light on the dramatic situation with U.S. debt and saying on October 17 the government will run out of funds to pay its bill, nobody is interested in octapering anymore. On Thursday the House Republican leaders rejected the short-term spending plan, which was expected to be passed by the Senate in coming days, raising concerns of a government shutdown. Furthermore, the White House and labour leaders are already discussing preparations for a possible government shutdown on October 1 and trying to assess its possible effects on the world's largest economy. As many as 1 million workers will be affected, starting from housekeeping aides and to rocket scientists. Additionally, almost half of the American Federation of Government Employee union, about 670,000 employees would be locked out of their workplaces in case of a shutdown. Regarding the economy, a shutdown would cut Q4 growth by as much as 1.4% depending on its length. Moody's currently estimates a 3% growth rate for the fourth quarter without a closure, however, in case of a three-to-four week shutdown it would be reduced up to 1.6%. A two-week shutdown starting October 1 could cut GDP by 0.3%. The momentum would be partially lost when output lost when workers are furloughed subtracts from economic output. Growing tensions between the White House and Congress would have even a bigger impact on the economy, as companies and households hold off on spending.
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