HUGO PATRICK BOLGER
Ireland
4m
The US Shutdown The United States quietly reentered the familiar, and rarely welcome, territory of a government shutdown, after Congress failed to pass continuing funding legislation. The shutdown reflects deep partisan divisions over health care subsidies, federal spending levels, and rescissions on foreign aid, with Democrats insisting on preserving Affordable Care Act tax‐credit expansions. Democrats want to tie portions of a funding bill to the permanent extension of healthcare subsidies, while Republicans have pushed for steep cuts to non-defense discretionary programs and reductions in domestic agencies. The dynamic is complicated because the Senate requires 60 votes to advance most spending legislation, and neither party commands that supermajority - forcing a bipartisan compromise. This standoff echoes the dramatic shutdown of December 2018 to January 2019, when President Trump and a Republican Congress clashed over funding for the border wall. That shutdown stretched 35 days - making it the longest in US history. During that interval, approximately 800,000 federal employees were partially furloughed or required to work without pay, nonessential operations ground to a halt, and the government’s productivity suffered. In contrast, most American shutdowns historically have lasted under a week (the average since 1977 is about eight days) and tended to be resolved with minimal economic upheaval. While they were more frequent, they were resolved quicker. In terms of how long will this current shutdown last, that is unknowable at this stage. If the brunt of political posturing can be sidestepped, a week or two is possible before a stopgap is put together. But if the partisan divide deepens - especially with either side treating the shutdown as leverage rather than a true emergency - it could stretch for multiple weeks, even approaching a month or more like with 2018-19. The economic consequences scale with duration. The White House has publicly warned that the US could lose around $15 billion in GDP per week of shutdown. Other forecasters suggest that each week of funding lapse subtracts roughly 0.1 percent annualized growth for the affected quarter. Because federal workers are either furloughed or forced to work without pay, consumer spending will suffer - particularly in regions with high concentrations of government employment and contracting. Rather worryingly, Trump has made it clear that he is willing to reignite the woes of DOGE as a negotiation tool to win over Democratic votes. This comes at the risk of thousands of Government employees. Some analyses warn of up to 43,000 more unemployed persons if the shutdown extends a month. At the same time, disruptions in the delivery of services (from health inspections to permitting or research) can ripple into private investment decisions, slowing activity beyond the immediate federal sphere. The shutdown of labour and inflation statistics offices can hamper economists' ability to guage the state of the economy and result in a delay in lowering interest rates. About 750,000 federal employees may be furloughed, and others deemed “essential” must work without immediate pay. Key agencies like the NIH, CDC, and elements of Health and Human Services will furlough large shares of staff - HHS anticipates about 41 percent layoffs of its workforce. The FAA plans to furlough over 11,000 employees, although air traffic controllers must continue working without pay. In the short term, many federal employees will receive back pay once the shutdown ends, but extended disruptions can strain households, push contractors into layoffs, and threaten longer-term contract cancellations. Turning to financial markets: somewhat counterintuitively, markets often look past government shutdowns, treating them as recurring noise rather than existential threats. Many shutdowns yield little to no long-term damage to equities or credit markets. In more than half of US shutdowns, the S&P 500 registered modest gains rather than losses—an average return of roughly 0.1% and yesterday the S&P closed up 0.34%, reflecting sentiment that this will not be a long shutdown. That said, longer shutdowns introduce greater risk: delayed economic data (on jobs, inflation, etc.) can handicap the Federal Reserve’s policy decisions and amplify uncertainty. Longer shutdowns tend to generate greater volatility, draw downward pressure on Treasury yields (as investors shift toward safe haven assets), and dampen liquidity. The present shutdown pits ideological fights over health care and spending limits against the practical need to keep government functioning. Its duration is uncertain, but should it extend beyond a few weeks the economic and employment toll could meaningfully hurt the US economy. The stock market may absorb it in stride at first - but the longer and more fractious the conflict, the greater the danger that it will bleed into investor confidence.
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