Late on Friday, the US Senate overwhelmingly passed a bipartisan government funding package designed to avoid an extended federal shutdown. The measure secured a 71-29 vote and garnered support from President Donald Trump. Despite this legislative progress, it has become evident that a brief lapse in government funding will likely occur since the House of Representatives is not scheduled to vote on the bill until Monday. Given the current funding for most federal agencies expires at 12:01 a.m. ET Saturday, a short-term shutdown is now considered almost inevitable, potentially impacting vital departments.
Scope of the Funding Legislation
The approved legislation aims to finance the majority of federal departments through to the end of the current fiscal year in September. However, the Department of Homeland Security’s (DHS) funding was distinctly separated from the main package and extended for only a two-week period. This exclusion stems from ongoing political disputes related to immigration enforcement policies.
By isolating DHS funding, other critical government branches such as the Pentagon, Treasury, Health and Human Services, Transportation, and Labor can continue operations without becoming entangled in the contentious immigration debate, at least on a temporary basis.
Political Factors Influencing the DHS Funding Arrangement
Senate Democrats advocated for the DHS carve-out following two recent high-profile incidents involving immigration agents. Most notably, a fatal shooting last weekend in Minneapolis involving a US citizen nurse without a criminal record sparked public outrage and prompted Democratic demands for reforms.
Specifically, Democrats seek to impose new limitations on DHS activities, which include ending roving patrols, prohibiting agents from wearing masks, and requiring the use of body cameras during operations.
Although the Senate has given its approval, the Republican-majority House of Representatives remains in recess until Monday, postponing their vote on the measure. This delay introduces the possibility of at least a brief government shutdown before funding is restored.
If enacted, this would represent the second government shutdown during President Trump’s second term, following the longest such shutdown in US history that commenced in October last year.
Challenges Faced by Prediction Markets in Shutdown Forecasting
The current funding dispute has also highlighted limitations inherent to prediction markets like Polymarket and Kalshi, which are commonly used to gauge the likelihood of political events such as government shutdowns. Traders have found it difficult to model complex outcomes that deviate from an all-or-nothing scenario.
Many trading contracts stipulate that a government shutdown equates to a total lapse in funding. This binary framework fails to accommodate situations such as partial shutdowns, brief funding gaps, or measures like the two-week DHS funding extension. Moreover, it does not easily capture shutdowns that are resolved within hours or days.
As the critical funding deadline drew near, betting odds for a shutdown surged dramatically on these platforms, with predictions exceeding 93% likelihood by Friday.