A short lapse in funding would probably do only modest damage. But it could send a troubling signal about government dysfunction.The New York Times reports that a potential federal government shutdown may not have a significant impact on the strong U.S. economy, but it could add more uncertainty to an already unclear economic outlook. If Congress fails to reach a deal to extend funding by the end of Friday, federal offices will not open on Monday and hundreds of thousands of government employees will be told not to work. While it is possible that legislators will act in time to prevent a shutdown or restore funding quickly, if the standoff continues, the consequences for federal workers and their families could be serious. Although federal law guarantees back pay for government workers, it may not come in time for those living paycheck to paycheck, and it does not apply to consultants or contractors. The last government shutdown in late 2018 and early 2019 resulted in federal workers lining up at food pantries after going weeks without pay. However, the overall impact on the economy is expected to be modest, as important government programs like Social Security and Medicare will not be affected, and essential services like air traffic control and aviation security will continue at least temporarily. While there may be a small drag on economic growth, forecasters at Goldman Sachs estimate that most of the impact would reverse in the next quarter. Other forecasters have released similar estimates.
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