Taper Delay
A one-week partial shutdown would trim 0.1 percentage point from economic growth, according to the median estimate of economists surveyed by Bloomberg, with the amount accelerating the longer the closing lasts.
“The shutdown in Washington has a negative impact on economic activity,” said Pollack, who is buying corporate and municipal bonds. “It will probably push tapering by the Fed further out in terms of time, it will delay it.”
Federal Reserve Bank of Boston President Eric Rosengren said last week the central bank refrained from tapering its $85 billion a month in Treasury and mortgage bond purchases because growth was lower than forecast and the budget and debt-limit showdowns posed a risk to the outlook.
“Had U.S. fiscal matters not been so problematic, and incoming data on real GDP and employment stronger, it may well have been appropriate to take some action in September,” Rosengren said Oct. 2 in a speech in Burlington, Vermont.
‘No Precedent’
A failure to come to terms on increasing the debt ceiling would be the first in U.S. history, said William O’Donnell, head U.S. government bond strategist at RBS Securities Inc. in Stamford, Connecticut.
“There really is no precedent that I know of in my study of history for anything that could occur at the end of this month if this becomes a train wreck,” said O’Donnell, whose firm is one of 21 primary dealers that trade with the Fed and are obligated to bid at Treasury auctions.
The government shutdown will end “very rapidly,” BlackRock’s Fink said Oct. 3 at an event hosted by the UCLA Anderson School of Management in Beverly Hills, California. BlackRock manages $3.97 trillion, according to its website.
“It’s theatrics posed by politicians to get ratings or to get their way via legislation,” said Pimco’s Gross, who manages the $250 billion Total Return Fund, the world’s biggest bond mutual fund. “It’s not a realistic proposition.”