The easy — though not entirely wrong — analysis of the ongoing government shutdown is that it’s a political event rather than a market or economic event. For Republicans and Democrats, the shutdown is the ultimate cage match with big potential electoral and policy implications. As the Washington Post characterizes the standoff: “[President Trump] has to win. His entire reputation, his entire relationship with the base, it’s all a function of being committed on big things and not backing down. If he backs down on this, Pelosi will be so emboldened that the next two years will be a nightmare.” Big stakes, to say the least.
But not so much for Wall Street. At least not yet. Perfect example: JPMorgan economist Michael Feroli has lowered his estimate of first-quarter real GDP growth to 2.0 percent from 2.25 percent with the “primary reason” for the revision being the shutdown. And although the longer the shutdown lasts the greater the risk of “spillover to the private sector,” Feroli adds, his downward revision to growth this quarter implies a lift to the second quarter (assuming the shutdown is over). So, even-steven, more or less.More