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Government shutdown cost the US billions of dollars, CBO says

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The longest partial government shutdown on record that ended Friday cost the US economy billions of dollars as it kept a fourth of federal agencies shuttered for five weeks, the Congressional Budget Office said Monday.

About 800,000 workers had been furloughed or forced to work without pay after the shutdown began December 22, leading to a delay in spending and weighing on private-sector activity. The nonpartisan office estimates that shaved about $3 billion, or 0.1%, from economic growth in the fourth quarter and $8 billion, or 0.2%, in the first quarter of 2019.

While the economy will eventually make up most real GDP lost during the shutdown, according to the office, about $3 billion will never be recovered.

The estimates didn’t incorporate more indirect effects of the shutdown, which the office said are more difficult to quantify but were probably becoming more significant as it continued.

“For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government,” CBO director Keith Hall said in the report. “Such factors were probably beginning to lead firms to postpone investment and hiring decisions.”

Indirect effects add a degree of uncertainty to the findings and could lead could lead to a more pronounced economic impact in the long run, according to former Federal Reserve staff economist Ken Kuttner.

That means the shutdown will likely influence monetary policy this year, he said. The Federal Reserve Open Market Committee is expected to leave interest rates unchanged at a two-day policy meeting ending Wednesday and have signaled flexibility going forward.

“My guess is that this will further strengthen the FOMC’s inclination to leave policy ‘on hold’ for the time being until the dust settles,” Kuttner said.

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