Bank of America CEO Brian Moynihan is sounding the alarm on the economic impact of the government shutdown.
When the government shutdown began, the general consensus was that it would not be too detrimental to the economy. Of course, some datasets would be missing. And yes, there could be a slight drop in consumer spending in a few areas due to federal workers not being paid. But the economy would rebound more broadly.
That certainty is now fading, with leading economic figures warning that the nearly month-long standoff is starting to significantly damage the outlook for U.S. businesses and consumers.
Brian Moynihan, CEO of Bank of America, is one of the voices now warning that if the government shutdown continues too long, more serious economic consequences will have to be endured.
“The government shutdown and the arguments over the budget and everything else, it’s a political process, but if you look at it from an economic perspective, it will ultimately slow down the economy,” Moynihan said. Indeed, any activity that requires government approval – whether SEC approvals for IPOs, employment data, public procurement, regulatory approvals, etc. – requires government approval. – is at a standstill, Moynihan added, meaning private sector businesses are being negatively impacted.
“The idea is that it will have an effect,” he added. Moynihan added that Bank of America and its related companies also bank between 250,000 and 300,000 government employees, all of whom are now being offered services such as loan forbearance and fee waivers due to issues with their paychecks.
“It’s a big deal, and the industry is stepping up,” Moynihan added. “The issue is that as this goes on, it affects more parts of the economy because activities that need approvals, need things to be done, just can’t be done, so I just hope they solve the problem. I still hope they do because at the end of the day there’s a lot of discussion that needs to happen about the fiscal situation in the United States, I think it’s best to go in with a clear head and you can sit and think about it without the pressure of what’s going on around her.”
Moynihan added that the spread of inactivity could cause a “unease” across the economy: “If a malaise develops and people slow down their spending, that’s a problem. If employers start saying, ‘I have to adjust my workforce more quickly than I otherwise would,’ that’s a problem. That’s when the big problems will arise.”
Confidence is also tainted by the fact that promises that the shutdown will end soon have proven hollow. White House economic adviser Kevin Hassett told CNBC on Monday, October 20, that the lockdown would “probably end” sometime this week. At the time of writing, no agreement has been reached.
Limited impact in Washington so far
Mark Zandi of Moody’s points out that so far, the consequences of the government shutdown have been largely limited to the Washington, DC area due to its impact on consumers. “This is unlikely to be the case for much longer,” the chief economist wrote in a note earlier this week.
Aside from the risks Moynihan highlighted (government contracts not approved, consumers cutting back on spending), Zandi noted that at the most extreme, financial markets may have to factor in: “While it’s difficult to envisage, if the shutdown extends into the Christmas shopping period, hurting retailers, that’s when financial markets will begin to downplay the hit to the economy, magnifying the economic damage.” »
He added that President Trump’s threat to cut unemployed workers could also further harm the outlook: “I suspect any reduction will outperform reality, but even so, based on our macro model simulations, in the scenario where the shutdown lasts until the end of the year, a recession is more likely than not.” »
