A government shutdown is on the agenda in the US, effective midnight on September 30, if Congress and the White House fail to reach an agreement on the federal budget.
That possibility puts the economy under new pressure eight months into President Donald Trump’s second term.
The Trump administration’s tariffs imposed as part of its global trade war have driven up prices, while widespread public sector layoffs and mass deportations have squeezed the labor market. Now, a looming budget crisis could bring federal agencies to a standstill.
“The economy is quite fragile right now. In a more resilient era, even a prolonged lockdown wouldn’t be a major blow. But under current conditions, it could be the factor that could drag the economy down,” said Mark Zandi, chief economist at Moody’s Analytics.
In the event of a federal shutdown, millions of public employees will lose their salaries, and some will be forced to continue working without pay. While Social Security and Medicare payments will continue, citizens’ access to many public services will be disrupted. It has also been reported that the Women, Infants, and Children (WIC) program, which provides food assistance to low-income families, will no longer be accepting new applications.
Past lockdowns have shuttered national parks and museums, halted loans and permits for small businesses, and disrupted food safety inspections. Experts estimate that each week the federal government is closed represents a loss of about 0.1 percentage points of the country’s quarterly economic growth.
The 2018-2019 shutdown, which lasted five weeks during Trump’s first term, caused a significant decline in GDP. Ryan Sweet, Chief Economist at Oxford Economics, stated that such prolonged shutdowns negatively impact not only public spending but also private sector investment and consumer spending.
This year’s lockdown risk comes at a time when the economy is already under pressure due to high tariffs, a slowing labor market, and mass deportation policies. Fed Chair Jerome Powell has described the economy as “challenging,” and experts warn that a prolonged lockdown could also erode confidence in financial markets.
*This is not investment advice.