Progress is emerging in US government budget negotiations, with a leading outlook in prediction markets favoring avoiding a shutdown

In response to changes in the political environment, traders in the prediction markets are beginning to significantly underestimate the risk of a U.S. government shutdown. According to the latest market probabilities indicated by Kalshi’s data, the scenario of a government re-shutdown after the end of January has decreased to 27%. Considering that just a few weeks ago, the probability was between 40% and 48%, this shift reflects a rapid change in market sentiment. Conversely, the probability of an agreement on the budget before the deadline is estimated at about 71%, indicating that traders’ optimistic outlooks are strengthening.

Political signals have shifted market sentiment

Several factors have contributed to this reevaluation of the market. The most significant is the impact of the “One Big Beautiful Bill Act,” enacted in 2025. This legislation secured 85-95% of the federal budget in advance until September 2026. Since many programs that require annual renewal now have year-round funding, the number of programs facing funding shortages has sharply decreased. This reduces the potential ripple effects of a government shutdown across federal agencies.

Positive signals are also coming from within Congress. Senate Minority Leader Chuck Schumer hinted at the possibility of “accelerating the process” and completing the appropriations bill early in the holiday season, together with Senate Majority Leader John Thune. Additionally, with the Republican Party gaining control of the White House, House, and Senate after the 2024 elections, the likelihood of legislative gridlock under a divided government has increased, potentially avoiding frequent legislative stalemates.

Politicians are also recalling recent chaos. The government shutdown in November 2024 lasted 43 days, a historic event caused by conflicts over funding between Republicans and Democrats. This lesson has made lawmakers acutely aware of the political costs associated with another shutdown.

Economic impacts heighten crisis concerns

Meanwhile, experts continue to warn about economic risks. RSM Chief Economist Joe Bruselas pointed out that another government shutdown could reduce Q4 economic growth by 1.5%. Such concerns are recognized among policymakers, further motivating efforts to avoid future crises.

Although budget issues remain unresolved in key sectors during the current Christmas recess, both markets and political developments are leaning toward avoiding a government shutdown. Attention is focused on the progress of negotiations ahead of the January 30 deadline.