NY Fed President: Gov’t Shutdown Could Hinder Economic Growth

While the Fed has hinted that it has been adjusting its U.S. economic outlook due to turmoil in the markets as well as decelerating expansion in China, New York Fed President John Williams said on Friday (Jan. 18) that the shutdown has become a hindrance for the economy, Financial Times reported.

With an audience of the New Jersey Bankers Association, Williams noted that policymakers at the Fed had noticed “some emerging headwinds to growth from the partial government shutdown” in addition to “geopolitical uncertainties.” At the same time, the official noted that quarterly growth could be reduced in the area of 0.5 to 1 percentage point per the forecasts of economists.

As it stands, White House economists who forecasted that the work not being completed by 380,000 furloughed federal workers could reduce gross domestic product (GDP) by 0.08 of a percentage point for each week that the current situation continues. In addition, it was reported that the work not done by federal contractors could contribute to a further 0.05 percentage point reduction.

The news comes as Federal Reserve Chairman Jay Powell said earlier this month that an extended government shutdown could be damaging to the U.S. economy. Powell offered his thoughts at a luncheon at the Economic Club of Washington, D.C. on Jan. 10. The official was speaking with Carlyle Group Co-founder David Rubenstein.

While shutdowns in the past were short and didn’t have too big of an effect on the economy, Powell noted that the current lockdown was entering into new territory as it continued its stalemate. “A longer shutdown is something we haven’t had,” he said at the time. “If we had an extended shutdown, then I do think that would show up in the data pretty clearly.”

In addition, Powell said the shutdown would make it more difficult for the Fed to analyze the economy’s health, as some of the agencies that monitor the economy are affected by the situation.