A partial shutdown of the U.S. federal government could begin at midnight if Congress fails to pass a spending bill to sustain operations, raising concerns about economic consequences. However, historical precedent suggests the broader impact would likely be minimal, especially if the lapse in funding is brief. n nCurrent government funding extends until 11:59:59 p.m. Eastern Time on Tuesday, marking the end of fiscal year 2025. Without new appropriations, a shutdown could commence as fiscal year 2026 begins on Wednesday. Such events have occurred intermittently since 1995, typically arising from disagreements between lawmakers and the executive branch over budgetary matters. During these periods, non-essential federal employees are placed on unpaid leave, while essential personnel continue working without immediate pay until funding resumes. n nDoug Beath, global equity strategist at Wells Fargo Investment Institute, observed that past shutdowns have generally had modest effects on economic activity and financial markets. However, he cautioned that short-term market volatility could emerge depending on the duration and scope of the disruption. n nOne concern is the suspension of key economic data releases from federal agencies, which could complicate the Federal Reserve’s decision-making on interest rates. While private-sector surveys offer alternative indicators, they may not fully substitute official statistics. Additionally, temporary job losses due to furloughs could influence labor market metrics, though these workers are classified as being on temporary layoff rather than permanent unemployment. n nAustan Goolsbee, President of the Federal Reserve Bank of Chicago, emphasized that the macroeconomic effect hinges on both the length and breadth of the shutdown. In past instances where only a fraction of federal operations were affected and the duration was short, overall economic output remained largely unchanged. He noted that individuals anticipate eventual back pay, so their spending behavior typically does not decline significantly. n nGoldman Sachs economists assessed that most prior shutdowns were brief, with the longest lasting 35 days in 2018. At that time, only about 15% of federal agencies were impacted because Congress had already approved funding for roughly 85% of government functions. Their analysis estimates that each week of a shutdown could reduce quarterly GDP growth by approximately 0.15 percentage points in the final quarter of the year, with a corresponding rebound in the first quarter once operations resume. n nThe firm also found that unemployment figures might rise temporarily, but this would reflect technical categorization rather than a true deterioration in labor market conditions. Financial markets have shown inconsistent reactions in past episodes, with no consistent trend in stock prices, bond yields, or the value of the dollar. That said, 10-year Treasury yields have tended to decline slightly, and the U.S. dollar has often weakened during such periods. n nA retrospective report by the Office of Management and Budget following the 2014 shutdown identified pockets of economic disruption, particularly in sectors reliant on federal permits, grants, or oversight. Still, the overall effect on national output was limited. n
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A government shutdown is looming: How does it impact the economy?
A partial shutdown of the federal government may begin at midnight barring action by Congress on a spending bill to fund operations which could spark concern over the economic impact, although it ‘s unlikely to have a significant impact based on past shutdowns. n nThe government is funded until 11:59:59 p.m. Eastern Time on Tuesday night, when current funding that runs through the end of fiscal year 2025 ends – creating the potential for a government shutdown to begin with the onset of FY2026 on Wednesday. n nGovernment shutdowns have occurred periodically since 1995, when Republicans gained control of Congress for the first time in 40 years. They typically occur amid disagreements between lawmakers and the White House over spending, taxes and other fiscal matters. Non-essential workers are furloughed during the shutdown, while essential workers remain on the job – though they typically aren ‘t paid until the lapse in government funding ends. n n”History suggests that a government shutdown will have limited economic and financial market impact, but there is potential for some market turbulence in the coming days,” Doug Beath, global equity strategist at Wells Fargo Investment Institute, said in a note. n nAIRLINES WARN GOVERNMENT SHUTDOWN COULD DISRUPT FLIGHTS, STRAIN AVIATION SYSTEM n n”The shutdown suspends government data publication at a time when the Federal Reserve is watching data carefully to decide on further rate cuts. There are private-sector job data and inflation readings from surveys of manufacturers, but these may not be conclusive,” Beath added while noting that potential federal job losses are another consideration. n nFederal Reserve Bank of Chicago President Austan Goolsbee said in a discussion moderated by FOX Business ‘ Edward Lawrence at the 2025 Midwest Agriculture Conference that while the Fed is effectively on the sidelines of government shutdowns, the level of economic impact depends on the duration of the funding lapse as well as its scale across the federal government. n n”Historically, not-super-wide shutdowns that don ‘t last for very long kind of do nothing to the aggregate economy because, yeah, they weren ‘t paid, but people ‘s spending doesn ‘t go down because they know they ‘re going to be paid eventually,” Goolsbee explained. n nPARTISAN STANDOFF THREATENS CRUCIAL ECONOMIC DATA, LEAVING FED – AND FAMILIES – IN THE DARK n n”So it depends how long this goes. It depends how wide it is. If there are reasons why this shutdown looks different than previous ones, then we would have to revise. But that ‘s kind of the starting point,” he added. n nAn analysis by Goldman Sachs economists noted that most government shutdowns have been short and that the longest shutdown in 2018 lasted 35 days – though it only impacted about 15% of the federal government as Congress had passed appropriations funding about 85% of operations at that point. n nThe Goldman Sachs report noted that for each week of a government shutdown, federal furloughs would reduce quarter-on-quarter economic growth by about 0.15 percentage points of GDP in Q4, with an equal-sized positive effect on Q1 growth assuming the shutdown ends by then. n nIt also found that a shutdown could temporarily raise the unemployment rate, but the effect should be minimal as furloughed workers are reported as unemployed on temporary layoff. n nHOUSE DEMOCRATS ‘ GOVERNMENT FUNDING PROPOSAL GOES DOWN IN FLAMES WITH SHUTDOWN DEADLINE IN HOURS n nThe firm ‘s report explained that past shutdowns have had a mixed impact on financial markets, with no clear pattern for how equities, interest rates and the U.S. dollar responded. Still, it noted 10-year Treasury yields tended to dip while the dollar has typically weakened. n nA report by the Office of Management and Budget on the effects of the FY2014 shutdown noted there are some areas of economic disruption caused by the shutdown. n nGET FOX BUSINESS ON THE GO BY CLICKING HERE