US government hours from shutdown, funding chaos

The US government on Saturday was hours from shutting down after the far right of the Republican Party scuppered final attempts at a temporary budget agreement, throwing into doubt everything from access to national parks to Washington's massive support for Ukraine.

The closure of all but critical government services, set to start after midnight Saturday (0400 GMT Sunday) if lawmakers fail to reach a deal, would be the first since 2019 -- immediately delaying salaries for millions of federal employees and military personnel.

The two chambers of Congress are deadlocked, with a small group of Republicans in the House of Representatives pushing back against stopgap measures that would at least keep the lights on.

On Friday, House Republicans defeated a plan proposed by their own leader, Speaker Kevin McCarthy, to keep funds flowing, deepening the sense of growing chaos within the party ahead of 2024 elections where hard-right former president Donald Trump hopes to return to the White House.

The White House Office of Management and Budget's director Shalanda Young said there was "still a chance" of avoiding a shutdown if Republicans could end internal divisions.

And White House Press Secretary Karine Jean-Pierre made clear that President Joe Biden, who is seeking a second term in 2024, did not intend to wade in.

"The conversation needs to happen between Speaker McCarthy and his caucus. That's the fix, that's the chaos that we're seeing," she said.

Speaking to the news outlet ProPublica on Friday, Biden said McCarthy has made "a terrible bargain. In order to keep the speakership, he's willing to do things that he, I think, he knows are inconsistent with the constitutional processes."

McCarthy, however, blamed Democrats, saying they are the ones blocking a solution.

- Big question on Ukraine -

All critical government services will remain functioning. However, a shutdown would mean the majority of national parks, for example -- from the iconic Yosemite and Yellowstone in the west to Florida's Everglades swamp -- would be closed to public access beginning Sunday.

With student loan payments resuming in October, officials also said Friday that key activities at the Federal Student Aid office would continue for a couple of weeks.

But a prolonged shutdown could cause bigger disruptions.

A shutdown "unnecessarily" places the world's largest economy at risk, White House National Economic Council Director Lael Brainard told CNBC.

Risks that could percolate through the wider economy include air travel delays, with air traffic controllers asked to work without pay.

Treasury Secretary Janet Yellen warned a closure could also delay infrastructure improvements.

"In the immediate term, a government shutdown will only reduce GDP by 0.2 percentage points each week it lasts," said a report released Friday by the Center for Strategic and International Studies, a think tank.

"However, halting critical trade functions of the United States will also undermine the United States' overall credibility as a commercial partner, impede ongoing negotiations and hinder export control enforcement capabilities," the report added.

The mess casts a growing shadow over Biden's policy of arming and funding Ukraine in its desperate war against the Russian invasion. For Republican hardliners behind the derailment of a new budget, stopping aid to Ukraine is a key goal.

Most Republican members of Congress continue to support US backing for Ukraine, but the shutdown will at minimum raise questions over the political viability of renewing the multibillion-dollar flow of assistance.