Mon, March 10, 2025 | 10:19AM ET

Shutdown Deadline This Week, Tariffs Shake Up Markets

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L . Thomas Block

Washington Policy Strategist

Midnight Friday shutdown deadline
Markets and the shutdown
House and Senate need to pass identical CR
Tariffs rattle markets
Reconciliation next up in Congress

Shutdown clock ticks

With Republican control of the House, Senate, and White House, the leaders are looking at a possible government shutdown if legislation funding the government isn’t passed by midnight on Friday.

Before reviewing the policy and politics of the coming week’s budget showdown, a study by Fundstrat Head of Data Science Ken Xuan is worth looking at. Xuan’s research shows that over time government shutdowns haven’t had a significant impact on markets. His work is attached and points to the need to separate headline risk from actual market performance. Lots of headline risk this week, as Congress and the White House work to avoid a shutdown, but history shows it may not have a significant impact on markets.

Shutdown Deadline This Week, Tariffs Shake Up Markets

House to act first

Over the weekend, House Speaker Mike Johnson released the Republican version of a six-month Continuing Resolution (CR), designed to keep the government open through the current fiscal year that runs until Oct. 1. Traditionally, the most conservative Republicans don’t support CRs as it largely maintains current spending levels, and these Republicans want to see deep cuts in government spending. However, last week, President Donald Trump summoned the conservative Freedom Caucus Republicans in the House to the White House and made clear to them that he needs them to support the speaker and a six-month CR. After meeting with the president, the group appeared ready to support the speaker’s six-month CR.

The bill released by the speaker over the weekend had a $6 billion increase in spending for defense, veterans, immigration actions, and healthcare; however, approximately $13 billion in cuts in non-defense budget areas versus spending levels in the FY 2024 budget.

With the strong support of the president, the speaker hopes to vote on the six-month CR as early as Tuesday. With a House lineup of 218 Rs and 214 Ds, the speaker and the president have little room for error. Vote counters will also be watching the 13 Democrats whose districts were won by Trump in 2024. These Democrats are the ones who are most likely to vote with Republicans to avoid a government shutdown.

Senate challenge

A CR is a regular order bill in the Senate that is subject to a filibuster. Under Senate rules, to stop a filibuster, there must be a special vote, a cloture vote, which stops debate but requires a super majority of 60 votes. With only 53 Republican Senators, they would need to pick up 7 Democratic votes to invoke cloture. At this point, it isn’t clear what strategy Senate Democrats will follow. Many have privately expressed concern about being blamed for a government shutdown once the Republicans have supported a plan that keeps the government open.

Another challenge for Congressional Democrats is the question of how to respond to the DOGE efforts where programs and money approved by Congress are being gutted or stopped altogether. Some Democrats want some level of assurance that funds approved in the CR will be spent, but the White House isn’t willing to give those assurances.

Bottomline: Lots of headline risk this week as Congress heads to the midnight Friday deadline.

Tariffs

Commerce Secretary Howard Lutnick appears to have taken the lead in trying to assure markets and impacted U.S. companies that there is a tariff plan that will work and will minimize disruptions. After a week of delays with Canada and Mexico regarding tariffs, a new deadline has been set for April 2. This date coincides with so-called reciprocal tariffs that could have a much wider impact on global trade. Markets are likely to remain jittery as talks between U.S. trading partners continue and the next deadline approaches.

Reconciliation

With the government shutdown and tariffs in the spotlight, Washington still needs to deal with the Budget Reconciliation Bill. The Budget Reconciliation Bill is the one legislative vehicle that is filibuster-proof and can be used to pass the Trump/Republican agenda. During the past month, the House and Senate have approved very different versions of the Budget Resolution, which is the first step in the Reconciliation process.

Before Congress can pass the broad Reconciliation Bill that will not only approve money for Trump priorities, it will also continue the Trump tax cuts that expire at year end. Over the next few weeks, with likely direct involvement of the president, the House and Senate will need to come up with a united strategy. Interestingly, the president did not show his hand at the joint Congressional session but after the CR government shutdown issue is dealt with, the Budget Resolution will be next on the Washington agenda.

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