As a result of the budget crisis not being overcome, the US government closed after a 7-year hiatus.
This will be the first U.S. government shutdown in nearly seven years, since the five-week shutdown on December 22, 2018. This will be the 22nd government shutdown in U.S. history.
Due to the impact of the lockdown, the government will suspend all operations except essential services, and many employees will be placed on unpaid leave. This will negatively impact the functioning of government institutions, as many will continue to operate with limited staff.
The government shutdown in the US, the duration of which is unclear, will also disrupt the release of official economic data, which markets are closely following.
Unemployment claims, nonfarm payrolls, and CPI-PPI data released by the Labor Dept. and the Bureau of Labor Statistics (BLS) will also be disrupted.
At this point, nonfarm payroll data, scheduled for release today, likely won’t be released. Furthermore, weekly unemployment claims data, released every Thursday, couldn’t be released yesterday and was postponed.
At this point, inflation data for September will be released on October 14th and 15th. If the lockdown doesn’t last long and is limited to a few days, both the PPI and CPI data could be released on October 14th and 15th, respectively.
This situation could also affect the FED, which acts based on economic data. This means that the FED may not have enough data to assess the economic situation and the continuation of interest rate cuts may become uncertain.
“A short shutdown that delays data might not have a big impact, but a prolonged shutdown that also threatens the release of mid-month inflation data could keep the Fed on hold and may not be willing to cut interest rates at its late-October meeting without the data,” said Joe Mazzola, chief trading strategist at Charles Schwab Corp.
International Monetary Fund (IMF) Spokesperson Julie Kozack said the impact of the US government shutdown will depend on the duration and method of the shutdown, adding, “We hope that a compromise can be reached that will ensure the federal government remains fully funded.”
Economists, who point out that historically, government shutdowns have had a limited impact on stock markets, say the disruption to the release of key economic data poses a risk to the Fed’s ability to assess the economy and, consequently, to cut interest rates.
*This is not investment advice.