U.S. GOVT SHUTDOWN.WHAT HAPPENED?After Senate Republicans and Democrats failed to reach an agreement on a new continuing resolution Wednesday, the U.S. government shut down for the first time since 2019. Leaders from both parties issued statements blaming each other, and President Trump has threatened to fire more federal workers during the shutdown.
Social security payments will continue to be made, and active duty members of the U.S. military will continue to be paid. But many other government agencies will be forced to close their doors and cease operations until a new budget bill is passed by Congress.
Why it Matters
The government shutdown will affect tens of thousands of federal employees, hundreds of government agencies, and millions of people in the United States who rely on those agencies for a wide range of services. Most federal workers will be placed on leave without pay for the duration of the shutdown, and if President Trump follows through on his firing threats, for some of those workers, the shutdown could be the end of their government service.
According to the Washington Post, the lapse in funding for the federal government means crucial government functions, from small business loan services to national parks to job training for veterans, will be halted until lawmakers pass new budget legislation. Federal work deemed essential for national security will continue.
Wednesday’s budget impasse created the twenty-second federal government shutdown in the past fifty years. The longest government shutdown lasted thirty-five days in 1995, and the shortest shutdown lasted less than one day. Thus far, leaders in both major political parties have given no indications they are ready to make concessions. Cuts to health care were at the center of the dispute this time, just like they were during the 2013 shutdown, which lasted sixteen days.
The reason for the shutdown is the lack of a normal budget process in Congress. Rather than passing a budget to cover the costs of government operations for an entire fiscal year, Congress has gotten into the habit of using continuing resolutions to fund the government. A continuing resolution is a temporary measure to keep the government funding for a set period of time, but rather than being used as a stopgap measure, they have instead become the norm.
Using continuing resolutions to fund the government is at the root of much of the dysfunction in the federal government. Because without a normal budget, many agencies have no choice but to adapt their operations to the provisions of the temporary funding bills, which can curtail and interfere with normal procedures.
Will this Impact the Market ?
1. Safe-Haven Assets like Gold and BTC prices often rise during shutdowns as investors seek refuge.
2. USD Fluctuations: The U.S. dollar might weaken initially, reflecting risk-off sentiment.
3. Delayed data like the Non-Farm Payroll (NFP) report and other Economic reports.
Historical Context
Past shutdowns have had limited long-term effects on equities if resolved quickly. However, prolonged closures (like the 35-day shutdown in 2018-2019) introduced volatility and eroded confidence.
Potential Outcomes
- *Brief Shutdown*: Minimal lasting impact, historically common.
- *Extended Shutdown*: More pronounced negative effects on GDP growth and confidence.
- *Resolution*: Markets often recover swiftly once funding is restored.
Overall, the impact depends on the shutdown's duration and the broader economic context.
