Senator Ugluk
For decades, government shutdowns, or the threat thereof, have mainly been associated with Republicans. Over the past few years specifically, the trend has continued, with fiscal hawks in the House saber-rattling over deficit spending.
But earlier this week, with a Friday deadline looming, the Republican-controlled House narrowly passed a six-month funding bill to prevent a shutdown, with only one GOP member, Thomas Massie, voting no. Afterward, traders drove the odds of a shutdown before March 19th as low as 12%.
This is an opinion, not financial advice. The views expressed are those of the author, who uses a pseudonym and cannot trade on the platform.
But since then, prices have once again begun to spike, reaching as high as 30%. But this time, it's Senate Democrats, not House Republicans, who may force the issue.
Unlike the House, which required only a simple majority, the funding bill will need 60 votes to pass the Senate. There are currently 53 Republican senators, which means seven Democrats will have to cross the aisle.
However, Republican Rand Paul, the Senate's equivalent to Massie, is refusing to support the bill due to spending concerns. This brings the total number of Democrats needed to pass the bill to eight.
Currently, our traders are forecasting only 54.4 "Yes" votes, well short of the 60-vote threshold.
More liberal members of the Democratic Senate, such as Elizabeth Warren, are in favor of forcing a shutdown in the hope of driving Republicans to the bargaining table, since Democrats had no input on the current version of the spending bill.
But more moderate Democrats, especially those who are up for election next year, are leery, fearing a shutdown could help tip the economy into a recession and provide a tariff-happy Trump with a convenient scapegoat.
According to The Hill, Senate Minority Leader Chuck Schumer is publicly backing a vote on a 30-day CR introduced by Senator Patty Murray. But privately, he is said to acknowledge that, with the House in recess, the current funding bill is the only way to avoid a shutdown, and the political fallout that goes with it. This explains why, despite all the noise, there is only a one-in-five chance of a shutdown in the short term.
That said, even if the Senate Democrats capitulate this time around, the threat of a shutdown at some point in 2025 still looms large. The current funding bill would only keep the government running for six months, which means that, in late summer, we'll likely be right back where we started.
Currently, traders price the odds of a shutdown sometime in 2025 at slightly higher than a coin flip.
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