The Stakes of Another Government Shutdown

Summary

Michael Zezas, deputy head of global research at Morgan Stanley, discusses the risk of a U.S. government shutdown later this week. He argues a brief calendar-driven shutdown is plausible but the economic and market effects should be modest and reversible, so investors should monitor the risk without overreacting. He also says midterm-election implications are too early to draw and likely less relevant because key policies are being executed through executive authority.

• A U.S. government shutdown later this week is possible amid Senate funding negotiations and the House being out of session.
• A brief weekend shutdown followed by a short continuing resolution is a plausible path.
• The base case is manageable economic impact; a full shutdown trims about 0.1pp from annualized quarterly GDP per week, and a partial shutdown would be smaller.
• Shutdowns typically do not reprice earnings, inflation, or the Fed path, so market reaction should be modest and markets likely look past the noise.
• The speaker says to monitor the shutdown risk but not overreact.
• Political midterm implications are uncertain and may not alter executive-driven policies on trade, regulation, industrial strategy, reshoring, and AI.
• Tax bill incentives for corporate capex are seen as a key 2026 outlook driver and would likely be protected from rollback by a presidential veto.