While a government shutdown isn’t seen as highly likely this fall, it’s not out of the realm of possibility.
A few circumstances could align to make it happen right when the Federal Reserve is looking at raising interest rates.
Pro-life Republicans in both houses want to defund Planned Parenthood after the release of damning, grisly videos showing the abortion provider engaged in the sale and marketing of fetal body parts. This would guarantee a Presidential veto.
In turn, some congressional Democrats and other Democrat leaders are talking about undertaking some maneuvering to force a gun control bill in the wake of the Oregon community college shooting.
The government is currently operating under a continuing resolution, which expires Dec. 11.
The next FOMC after that is Dec. 15-16, four days after the CR expires.
Bottom line: If the FOMC elects to leave its target rate unchanged during the October meeting, and lawmakers are unable to reach an agreement funding the government, then the FOMC will have to make its December decision under the economic cloud of a government shutdown.
“While myriad factors influence rate decisions, a lengthy government shutdown during the FOMC’s December meeting will surely give some voters pause since the 2013 government shutdown shaved ~0.25 percentage points off the annualized GDP growth rate,” says Isaac Boltansky at Compass Point Research & Trading. “If the FOMC leaves rates unchanged in October, its next meeting could be during a federal government shutdown which would complicate the committee's decision and likely lessen the odds of liftoff in 2015.”