Speaker of the House Kevin McCarthy (R-Ca.) is under immense pressure to avoid a government shutdown as the October 1 deadline quickly approaches. One option for McCarthy circumnavigating a shutdown would be to work with Democrats to cut a deal, and the other option would be allowing far-right members to try and push through the appropriation bills — both with their own risks associated with party politics and likelihoods of success or certain shutdown catalysts.

Strategas Asset Management Portfolio Manager Courtney Gelman and E.J. Dionne, the Brookings Institution Senior Fellow in governance studies and Washington Post columnist, join Yahoo Finance to break down the situation Speaker McCarthy finds himself in and what either choice could mean for the country.

"The stock market doesn't react that much," Gelman explains, adding that due to the current headwinds "companies with government and federal funding... will be impacted in the overall market."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- E. J., do you think Speaker McCarthy is in a lose-lose situation just in terms of the options that he has out in front of him? One, he could be viewed as siding with the Democrats and avoid a government shutdown. And then on the other hand, if we do see a shutdown, obviously, the blowback from that, but also the fact that he would then be siding with some of the members of the far right from the GOP. I guess, how is he thinking about those stakes and exactly what's at risk for him personally?

E. J. DIONNE: You know, It's nice to have a question where the answer is clear. The answer is yes, he is in a lose-lose situation, which is why this is so difficult. He knows that if he passes something with all kinds of provisions to satisfy the far right, that will never get through the Senate, or he may not have the votes at all, thus a shutdown.

But if he gets a shutdown, that's very bad for him and his party going forward. This is configured in a way that he and his party will take most of the blame for this. And it's also a historical thing. The shutdown has generally been a Republican tactic.

So the average voter, who may not follow all of the ins and outs of what goes on in Congress, is more or less inclined to blame Republicans at this point for a shutdown because that's something they've done before. So yeah, he's in a very difficult position. I mean, I don't think he's going to listen to my advice, but I think in the end, he'd be better off to govern and let the chips fall where they may.

You might even have a situation where Democrats, at some point, say, look, if there's a motion to vacate, we'll temporarily back you just so we can govern. And I think the behavior of Democrats in the next several days is going to be really interesting to see what they might do, which would either put McCarthy in a more difficult situation or it might get some resolution that doesn't lead to a shutdown.

- E. J., I feel like you were all of us earlier in saying that it doesn't have to be this way. And, I mean, when I think, Courtney, about the broader implications here as well, in your notes, you mentioned that this could impact things like the dissemination of data. This could impact the US credit rating. So what type of real ramifications are we looking at here?

COURTNEY GELMAN: Right. Well, the ramifications certainly aren't as severe as the debt limit, which was when McCarthy did have to make that deal with Biden. So we actually don't think that McCarthy has the cover right now to make the deal with Democrats. You know, when we're one to two weeks into the shutdown and the Republicans are getting more blame, that might give him the cover that he needs within his own party.

But in terms of the ramifications, typically, the stock market doesn't react that much. We do have a lot of headwinds, as you all have repeatedly discussed over the morning. So we do have a lot of headwinds, and this is exacerbating those concerns. Certainly, companies levered to, you know, government and federal funding, those are going to be more impacted than the market overall.

Typically, not a huge GDP impact, especially because this is happening at the beginning of a quarter, so there's time to make this up. The Fed won't have access to data, but they will potentially still be able to get the September data because that data was collected. It just won't be disseminated.

I'm sure that if they ask for it, they can, you know, be able to get it. And they will still have private data that's still being collected and being published. And then the credit scenario is something that I would say we're the most concerned about, or if you have Modi's put the US on credit watch over the process of a government shutdown, similar to what we saw in 2011 when the S&P downgraded the US off the process of the debt limit and earlier this year when Fitch downgraded the US.

So we are concerned about a credit watch, but we don't necessarily think that Modi's would make the decision to actually downgrade the US debt. We think that they would make that decision later, potentially when you have another debt limit fight in 2025.