Will the Fed raise rates during a government shutdown? - BBH

It would be possible but awkward for the Federal Reserve to raise interest rates when the government was shut. They mentioned that the economic impact is minor and investors have come to accept this. 

Key Quotes: 

“The short-term solution reached last month to extend the US federal government's funding expires on Thursday, February 8.  Leaders from both parties say they want to avoid another partial closure. Last month, parts of the federal government were closed for three days, which is about par for the course (around half of the government's 19 shutdowns since 1977 lasted three days).”

“A short government shutdown makes for poor optics, but the economic impact is minor and investors have come to accept this. A longer shutdown impacts GDP primarily through reduced work hours. It is disruptive to tourism, which is accounted for as a service export. A government shutdown does not sit well with the rating agencies.”   

“The debt ceiling has also not been resolved. Treasury Secretary Mnuchin has indicated that the current workaround will be exhausted late March. The Congressional Budget Office said late last month drop-dead date may be a bit early as the new tax changes reduce government revenues.”

“The failure to renew spending authorization leads to government shutdowns, but the failure to lift the debt ceiling would produce a default or the inability of the US to service its debt.  

“The House bill to pass a continuing resolution bill to extend the current spending authorization until March 22 would be sufficient to keep the government open through the March 21 FOMC meeting. It would be possible but awkward for the Federal Reserve to raise interest rates when the government was shut. The recent string of data has fanned expectations of strong quarterly growth. The Atlanta Fed's GDPNow tracker is pointing to 5.4% annualized growth in Q1, while the NY Fed's model suggests a still robust 3.2% pace.”

“The futures contracts settle at the average effective rate for a given month.  A 25 bp rate hike would lift the average effective rate to 1.67% (from 1.42%).  Currently,  the April contract implies a 1.64%.  This means that the hike is 88% discount, to say the same thing, the collective wisdom of the market assesses an 88% probability to a March hike.”