By Naveen Athrappully
The ongoing shutdown of the federal government could negatively impact America’s GDP, Treasury Secretary Scott Bessent said in a CNBC interview published on Oct. 2.
On Oct. 1, the federal government shut down after Democrats and Republicans failed to agree on a deal to pass a short-term plan to keep the government funded. The House of Representatives has approved a funding proposal, but the Senate has yet to pass it.
Senate Democrats opposed the plan, demanding that it include the rollback of Medicaid cuts made in the One Big Beautiful Bill Act, signed into law by President Donald Trump in July.
They also want to extend enhanced subsidies under the Affordable Care Act, which were introduced amid the COVID-19 pandemic and scheduled to expire by year-end. Republicans have rejected the demands and have asked that the government reopen before negotiating on health care policies.
In his interview, Bessent criticized Democrats’ stance on the issue.
“This isn’t the way to have a discussion, shutting down the government and lowering the GDP,” he said.
“We have a 3.8 percent GDP, and the Democrats shut down the government. We could see a hit to the GDP, a hit to growth, and a hit to working Americans.”
According to recent data from the Bureau of Economic Analysis, the United States registered a 3.8 percent GDP growth in the second quarter, higher than the expected 3 percent. The growth rate improved significantly from the first quarter’s 0.6 percent contraction.
The White House credited the growth to Trump’s economic policies, such as tax cuts, tariffs, deregulation, and a focus on America’s energy revitalization.
Bessent’s statement that the government shutdown would negatively impact the United States’ GDP has been echoed by the Council of Economic Advisers, an agency within the Executive Office, charged with advising the president.
In an Oct. 1 report, the council cited estimates from Goldman Sachs and the Federal Reserve that quarterly GDP could drop by roughly 0.2 percentage points for every week of a federal government shutdown.
“If applied to current GDP levels, that implies an economic loss of approximately $15 billion per week,” said the report.
The White House said in an Oct. 3 post that the shutdown may result in job losses in all 50 states. If it prolongs for a month, there could be over 43,000 more unemployed Americans.
Moreover, “consumer spending will fall as a result of lost wages from furloughed workers and reduced federal contract spending,” it said.
Shutdown Tussle
Bessent said in the CNBC interview that the spending cuts made in the One Big Beautiful Bill will not be reversed.
“We’re not gonna go back on them,” he said.
According to the Treasury Secretary, Democrats are now demanding $1.5 trillion in government spending in their negotiations on the short-term funding plan to end the shutdown. That’s the amount Republicans estimate that Democratic demands related to the One Big Beautiful Bill Act and the Affordable Care Act would cost the government.
“That would be almost as big as the ill-fated IRA, which caused the worst inflation in half a century. So, they want to put this inflationary impulse into President Trump’s already strong economy. You know, the economy is growing at 3.8 percent. We don’t need $1.5 trillion pumped in,” Bessent said.
IRA refers to the Inflation Reduction Act signed into law by President Joe Biden in August 2022.
In an Oct. 3 X post, Senate Democratic leader Chuck Schumer (D-N.Y.) reversed the blame and said this was a “Republican Shutdown.”
“Donald Trump and the Republicans are vowing to make this a MAXIMUM PAIN SHUTDOWN for the American people. They’re using the American people as political pawns because they don’t even want to TALK with Democrats to reopen the government,” Schumer wrote.
JP Morgan said in an Oct. 3 analysis that since federal agencies such as the Bureau of Labor Statistics have suspended operations under the shutdown, publication of key economic data, such as inflation and jobs reports, would be delayed.
“This could pose a headache for the Federal Reserve, which is mulling the prospect of further rate cuts ahead of its next meeting in October,” it said.
