Shutdown talk is again gripping Washington. With Congress heretofore unable to reach a budget agreement, the government should see a partial shutdown beginning Oct. 1. And that could be the real reason that the Federal Reserve won't raise rates, according to one strategist.
"In the end we probably won't get a shutdown, but the chances of a shutdown in the market's eyes will probably move from 5 to 10 percent, to 70 percent, back to 5 to 10 percent. And if you're a Fed governor on Thursday of this week, and you're looking at the risks, it's another reason to relax and hold off," said Larry McDonald, head of U.S. strategy at Societe Generale, in a Monday "Trading Nation" segment.
The central question for the market this week is whether the Fed will finally raise its federal funds rate target. For McDonald, the prospect of a government shutdown could alter the market's calculus.
"It would take about 0.2 percent off of GDP growth that quarter, so that's essentially like a rate hike," McDonald said. "The Fed governors will look at it like hiking rates, so therefore they'll hold off" on doing the same.