The U.S. government has a roughly one-in-three chance of shutting down next week, as Democrats and Republicans wrangle over health care policy, according to analysts at BCA Research.
Lawmakers face a deadline to agree by October 1 -- the start of the new U.S. fiscal year -- on a new stopgap spending bill to keep the government open, with Republicans needing support from some Democrats in order for the legislation to pass through a deeply-divided U.S. Senate.
On Tuesday, President Donald Trump said he had canceled a meeting at the White House with congressional Democrats, arguing in a social media post that any negotiations would not be "productive."
In return for their support, Democrats are calling on Trump and Republicans to back funding for an extension to Obama-era health subsidies, which are due to expire at the end of 2025.
Last week, Senate Republicans failed to pass a House bill which would allow federal funding to keep flowing until November 21. Along with extending the health subsidies, Democrats were also calling for a scrapping of cuts to Medicaid and other federal health programs which were folded into a sweeping budget bill earlier this year.
Republicans may need to accept a partial extension of the subsidies for two years at a cost of around $65 billion, the BCA analysts said.
At the moment, the strategists led by Matt Gertken said there was a 33% chance of a shutdown of "more than a couple of days" taking place, although they added that this would probably not happen before November.
Democrats, the analysts argued, would particularly have an interest in seeing how off-cycle gubernatorial elections -- due to come in early November -- in Virginia and New Jersey pan out.
"What if a shutdown backfires and they miss the chance to win two prominent state governor races? A shutdown can wait till after those votes," they wrote.
For financial markets, a shutdown could spark short-term volatility and a "minimal hit" to gross domestic product, the analysts said. But "negative catalysts can surprise" with stocks currently trading at around all-time highs, they warned.
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