If government funding expires next week, the shutdown combined with other economic issues could make for a weak fourth quarter. Global Head of Fixed Income and Thematic Research Michael Zezas and U.S. Public Policy Analyst Ariana Salvatore discuss.----- Transcript -----Michael Zezas: Welcome to Thoughts on the Market. I'm Michael Zezas, Global Head of Fixed Income and Thematic Research for Morgan Stanley. Ariana Salvatore: And I'm Ariana Salvatore from our U.S. Public Policy Research Team. Michael Zezas: Along with our colleagues, bringing you a variety of perspectives, we'll be talking about the market and economic impacts of a potential government shutdown later this week. It's Wednesday, September 27th at 10 a.m. in New York. Michael Zezas: So, Ariana, let's get right into it. Congress is up against a tight deadline with government funding set to expire on the first day of the next fiscal year, which is October 1st. What's the state of play? Ariana Salvatore: So the first thing I'll say is that the situation is very fluid at the moment with lots of uncertainty between now and Sunday. Last night, the Senate voted to advance a bipartisan clean C.R. or continuing resolution, which could eventually serve as the legislative vehicle to avoid a lapse in appropriations. Clean, in this sense, means that the bill includes little to no funding for Ukraine aid or disaster relief, two items that Republicans had previously taken opposition to. Right now, the ball's in Speaker McCarthy's court. He can choose one of three options, first, to bring the Senate C.R. to the floor and rely on moderates, and perhaps even some Democrats, to cross the aisle and pass the bill. Second, he can ignore it and try to continue with the House-led funding process. Or third, he can take the C.R. out on some Republican policy items like border funding, for example, and send it back to the Senate where it's almost certainly dead on arrival. Options two and three, because of that, increase the likelihood of a shutdown. But option number one really doesn't solve the problem either, as it would just punt the issue until later in the Fall, and in our view, increase the chances of McCarthy facing a motion to vacate the chair or a motion to oust him as speaker. So all of this is to say that a shutdown seems pretty likely at the time we're recording this. The question is, of course, how long it could last. Michael, how are you thinking about the possible duration of a shutdown, assuming we do, in fact, get to Sunday without significant progress being made here? Michael Zezas: So there's a few scenarios to consider here. One is a pretty brief shutdown, one that lasts for less than a week and ultimately ends with a continuing resolution. Perhaps Speaker McCarthy agrees to put the Senate pass continuing resolution on the floor for a vote. Another scenario is one that lasts for a few weeks. And here you might have a situation where House Republicans continue to oppose any continuing resolution. And after enduring a shutdown for enough time, federal employees' paychecks begin to lapse, economic pressure begins to build and all of a sudden there's just more acceptance around the idea of a continuing resolution to allow more time for negotiation. And then another scenario would be something that lasts quite a bit longer, several weeks. And here, you clearly have a breakdown in negotiation positions, members of the Republican caucus perhaps refusing to vote for any type of continuing resolution, there being major roadblocks on the issues you spoke about already, Ariana. And the potential way to fix this would have to be through something like a discharge petition where members of the House of Representatives work around Speaker McCarthy using procedural rules. But that's something that takes a long time to play out and could take several weeks to play out. So given all this uncertainty, sometimes it helps to look back at history as a guide. Ariana, what can we learn from sim