Wall Street Posts Broad Losses as the Risk of a New U.S. Shutdown
If no deal is reached, a second government shutdown in just a few months would begin one minute after midnight on Friday, January 30.
Quick overview
- Political tensions surrounding the U.S. budget delay are increasing the risk of another government shutdown.
- Wall Street indexes mostly closed lower, influenced by a sell-off in Microsoft shares after its quarterly earnings report.
- The Federal Reserve maintained interest rates steady, signaling optimism about the economy while hinting at potential future rate cuts.
- Intensified talks in Washington aim to prevent a government shutdown, with Democrats pushing for oversight measures in a spending bill.
Political noise surrounding the renewed delay in approving the U.S. budget is raising the risk of another government shutdown.
This comes on top of fresh attacks by Donald Trump against the Fed chair and renewed threats of military action against Iran. On the corporate front, Microsoft’s earnings triggered a shake-up across the technology sector.
Major Wall Street indexes closed mostly lower on Thursday, as investor sentiment was weighed down in large part by a sell-off in Microsoft shares following the release of its quarterly results, which rippled through software and tech services stocks. At the same time, Trump renewed his calls for interest rate cuts by the Federal Reserve, while the specter of another U.S. government shutdown resurfaced. Markets were also unsettled by the latest White House statements regarding Iran.
In this context, the Dow Jones Industrial Average edged up 0.1% to 49,071.56 points; the S&P 500 fell 0.2% to 6,963.76; and the Nasdaq Composite dropped 0.7% to 23,685.12.
The Federal Reserve holds rates steady
The Federal Reserve kept interest rates unchanged on Wednesday in a range of 3.50% to 3.75%, marking the first pause after three consecutive rate cuts. In its policy statement, the Fed pointed to still-elevated inflation, solid economic growth, and a stabilizing labor market, offering little guidance on the timing of future cuts.
Overall, the Fed struck a more optimistic tone on the economy. Subtle changes in the FOMC statement slightly improved the Committee’s assessment of labor market conditions and signaled somewhat reduced concern about inflationary pressures.
Although the Fed did not update its dot plot at this meeting, analysts noted a growing alignment between the central bank and financial markets—reflected in federal funds futures—regarding the likelihood of one to two quarter-point rate cuts by year-end.
“With this alignment between the Fed and financial markets, the risk that monetary policy negatively impacts equity markets heading into the second half of the year is reduced,” one analyst said.
Another U.S. government shutdown?
Talks to avert another U.S. government shutdown intensified in Washington, D.C., over the past several hours, with a potential agreement appearing increasingly close.
Spurred by the death of 37-year-old Alex Pretti in Minneapolis, Democrats are pushing to strip funding for the Department of Homeland Security (DHS) from a $1.2 trillion spending bill unless additional oversight measures are included.
If no deal is reached, a second government shutdown in just a few months would begin one minute after midnight on Friday, January 30.
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