Government Shutdown: What You Need to Know

With Congress unable to reach an agreement on funding the government, a government shutdown began when the new fiscal year started on October 1. While historically the markets have not reacted much to government shutdowns, an extended shutdown will impact the release of key economic data and could increase market volatility. Here's where things stand:

• Seven votes on a temporary extension of funding have failed in the Senate. The Senate has now voted seven times—most recently on October 9—on a House-passed "continuing resolution" that would fund the government until November 21. To pass the Senate, the measure would need 60 votes in favor. It hasn't attracted more than 55 votes so far. As a reminder, Republicans hold 53 seats in the Senate to Democrats' 45 (plus two independents who caucus with the Democrats). Two Democrats and an independent have supported the continuing resolution in previous votes, while one Republican has voted against. Republicans are expected to call for votes on a near-daily basis in the hope of pressuring more Democrats to join them in support.
• House remains out of session. The House of Representatives will remain in recess for a fourth consecutive week. Republicans argue that they have done their job by passing the continuing resolution, and that there is no need to return to Washington until the Senate passes the measure and re-opens the government. Democrats continue to argue that the multi-week hiatus shows that Republicans are unwilling to negotiate or work on other issues while the Senate decides its next steps.
• President Trump says military paychecks will go out this week. October 15 is a key milestone, as it's the date military personnel will miss their first paycheck. The president has said he had directed the Pentagon to use funds re-allocated from other defense programs to pay military personnel as scheduled. On October 13, Treasury Secretary Scott Bessent said the Treasury is "having to prioritize payments" to ensure military personnel get paid this week. Ironically, paying the military could actually extend the shutdown, as it resolves (for the moment) one of the major pressure points in the standoff on Capitol Hill.
• Most other federal workers will miss their first paycheck this week. Most other federal workers are scheduled to be paid on October 16. Assuming the shutdown isn't resolved by then, an estimated 1.5 million federal employees will miss their first check. That could change the tenor of talks in the Senate.
• The BLS will produce its CPI report later this month after all. The Bureau of Labor Statistics (BLS) is recalling furloughed workers to prepare the September consumer price index (CPI) report. The BLS said the new inflation numbers would be published on October 24, more than a week after the originally scheduled publication date of October 15. But the data will be available prior to the Federal Reserve's next monetary policy meeting, which kicks off on October 28. The BLS said no other data will be published during the shutdown.
• Administration begins firing furloughed workers. The White House made good on days of threats, announcing Friday that it had fired about 4,100 federal employees across seven federal agencies and threatening to engage in further "reductions in force" during the shutdown. Firing federal employees during a shutdown is unprecedented.
• Bipartisan group of senators still seeking a deal. An ad-hoc group of senators from both parties has been negotiating to try to find an agreement to break the impasse. While no compromise has yet emerged, this may be the most promising path toward resolving the standoff.

• How we got here: Congress hasn't passed any of the 12 annual appropriations bills needed to fund government operations during the new fiscal year that began October 1. In such situations, Congress typically passes a temporary measure, known as a continuing resolution, that keeps funding going at current levels while the two parties negotiate a longer-term plan.
• What does (and doesn't) happen during a shutdown: An estimated 750,000 federal workers will be furloughed. Most federal workers aren't paid during a shutdown. However, many critical government functions will continue; for example, national security and law-enforcement functions, Social Security payments, air-traffic control, and U.S. mail deliveries. The Federal Reserve and Federal Deposit Insurance Corporation (FDIC) are operating normally, as their operations are funded by fees rather than by Congressional appropriations. The Securities and Exchange Commission (SEC), however, has furloughed about 91% of its employees, retaining a skeleton staff for market surveillance.
• Does the market care about government shutdowns? Historically speaking, not really. During shutdowns dating back to the 1970s, market reaction has been mixed, but the S&P 500 has actually risen during the most recent shutdowns. Some analysts believe that this shutdown could create more market volatility because of the uncertainty as to how long it will last, the lack of economic data releases and its potential impact on the Federal Reserve's monetary policy decision-making, and broader worries about government dysfunction.
• What are the key sticking points between the two parties? Democrats want Republicans to negotiate on health care and other issues in exchange for voting to lift the shutdown. They are particularly concerned about the expiration at the end of 2025 of enhanced subsidies to purchase health insurance via the Affordable Care Act. Republicans argue that they are willing to have those negotiations only after Democrats vote to end the shutdown. That's the current stalemate on Capitol Hill, and it is uncertain which side will blink first and when.
• Talks continue on the broader appropriations bills. While the debate about a temporary extension of government funding goes on, Congress is continuing to work on the specific appropriations bills. Each chamber has passed three of the 12 bills—those dealing with Agriculture, Military Construction and Veterans Affairs, and the legislative branch—and are working to harmonize the specifics on those bills. Once a consensus is reached, each chamber will have to vote to pass those again. Passage of those bills—and other appropriations bills—would mean that the parts of the government that are fully funded can reopen while other parts of the government remain shuttered.

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