Original | Odaily Planet Daily (@OdailyChina)
A major macro event this month is whether the U.S. government will shut down at the end of January. Last October, the U.S. government was shut down for 43 days, and only resumed operations after a temporary funding bill was passed. January 30 is the expiration date of that temporary funding bill; if Congress does not pass a formal funding bill or does not have a new temporary bill to extend it, the U.S. government will shut down again.
The main contention between the two U.S. parties this time revolves around funding for the Department of Homeland Security (DHS). The Democrats believe that ICE (Immigration and Customs Enforcement) has issues with its enforcement in Minnesota, which has resulted in two deaths, and they want to strictly limit funding and related actions. However, the Republicans disagree, arguing that ICE is a key force in combating illegal immigration and welfare fraud, leading to a standoff between the two sides. (For more on the U.S. parties' disputes, see: The Storm of U.S. Government Shutdown Reemerges, Will the Crypto Market Repeat the Plunge Script?)
This confrontational state between the two parties, combined with the approaching expiration date of the temporary funding bill, has caused the probability of a U.S. government shutdown at the end of January to surge in prediction markets. However, this morning, Polymarket data showed that the probability of the U.S. government shutting down at the end of January has continued to decline, currently dropping to 42%, after previously reaching a high of 80%.
The price changes in prediction markets reflect the outcome of collective intelligence games. The rising probability of betting that the U.S. government will not shut down at the end of January indicates that people believe the high certainty of a government shutdown, as suggested by prediction market probabilities, no longer exists in the current political situation in the U.S.
Midterm Elections Are the Key Focus for Both Parties
On January 28, regarding the risk of another government shutdown, U.S. Treasury Secretary Janet Yellen stated that the current situation is still unclear but emphasized that President Trump has urged the Democrats to avoid this scenario.
The essence of this government shutdown crisis is that the Republicans have been caught in a political backlash by the Democrats. The shooting of a U.S. citizen by ICE enforcement personnel in Minnesota on January 24 is essentially a result of the Trump administration's intensified immigration enforcement, leading to widespread public protests expressing dissatisfaction with the Trump administration. The Democrats have seized this opportunity to block the funding bill in the Senate, as it reflects voter demands, thus gaining the political initiative in this counterattack.
As a result, the Republicans find themselves in a passive position. If the U.S. government does shut down because of this, the Democrats can easily blame the series of economic and livelihood issues (delayed economic data releases, widespread flight delays, etc.) caused by the shutdown on the incompetence of the Republican government.
This series of potential chain reactions will also impact the real issues that both U.S. parties care about this year: the U.S. midterm elections.
The U.S. "midterm elections" are held in the second year of the president's term, with all 435 seats in the House of Representatives up for reelection, and about one-third of the Senate seats typically up for reelection. Currently, the Republicans hold a majority in both the House (218 seats) and the Senate (53 seats). If the Republicans want to maintain their seat advantage and ease governance difficulties after the midterm elections at the end of the year, they cannot afford to accumulate too many "stains" politically this year.
Moreover, although the midterm elections do not involve the U.S. presidential election, they are also seen as a "midterm referendum" on the sitting president, which will influence the president's policy direction for the next two years and reshape the internal power structure of the party and the candidate landscape for the next presidential election. Therefore, this is extremely important for Trump as well.
From the above analysis, it can be seen that this government shutdown is no longer just a funding issue but a political battleground that both U.S. parties are laying out in advance for the midterm elections at the end of the year. The Republicans, in a passive position, are highly likely to compromise to resolve the crisis and contradictions.
For the Democrats, if the Republicans compromise, it would also be a political victory.
Compromise is Underway
This U.S. government shutdown crisis will not be as "comprehensive" as last October, and the scale of the shutdown may be much smaller (at that time, all 12 funding bills expired). Currently, funding for the Department of Commerce (responsible for releasing GDP data, etc.) and the Department of Agriculture (responsible for food welfare) has been secured, but about 78% of federal government functions—related to the remaining six funding bills—may face funding interruptions.
The Democrats have already given the Republicans a way out. Senate Minority Leader Chuck Schumer (D-NY) stated on January 28 that Senate Democrats "are prepared to quickly advance five funding bills before the January 30 deadline, separating them from the DHS funding bill," which may be a way to avoid a large-scale government shutdown. However, Senate Republicans have not yet responded to the agreement to separate the DHS bill from the overall funding package.
On the other hand, it is unrealistic to demand changes to the DHS funding before January 30, as any modifications to the remaining six funding bills must be submitted for approval by the House, which will not reconvene until February 2.
For the Democrats, dragging the U.S. government into a shutdown state by being overly rigid in modifying the funding bill would not be beneficial for them, and it could even reverse the "offensive and defensive momentum" against the Republicans. Therefore, the current consensus between the two U.S. parties may be to pass a temporary funding bill to first address the potential shutdown issue, and then postpone the conflicts between the two parties.
While Odaily was writing this article speculating that the two parties might compromise to avoid a government shutdown, the New York Times also reported that Trump is reaching a possible agreement with Chuck Schumer to avoid a government shutdown.
According to two informed officials, under the plan being developed, the Senate will separate one of the six spending bills, which aims to provide funding for the Department of Homeland Security, to maintain funding for the military, medical programs, and other federal agencies for the remainder of this fiscal year. The Senate is expected to pass these bills before the Friday midnight deadline, and Congress will also consider a short-term extension of DHS operations to prevent service interruptions for the Transportation Security Administration, Coast Guard, and Federal Emergency Management Agency.
It remains unclear how this potential agreement will affect the funding bill votes this week, but it at least indicates that both the White House and the Senate are working towards resolving the crisis.
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