Impending Government Shutdown: Implications for the Economy

Government Shutdown Likelihood: The U.S. government faces a potential shutdown on Oct. 1 due to the Senate rejecting a House-passed continuing resolution, with an 82% probability of a shutdown occurring, impacting federal services and workers.

Economic Impact: A full shutdown could affect up to 900,000 employees, with a potential GDP drag of 0.1 percentage points per week, and longer shutdowns may lead to permanent layoffs, particularly affecting the Washington, D.C. area.

Consequences for Federal Workers: All federal workers, including active military and essential personnel, would not receive pay during the shutdown, leading to financial strain similar to past shutdowns where workers relied on food banks.

Market and Federal Reserve Effects: While short-term shutdowns typically do not disrupt financial markets, delays in economic data releases could complicate the Federal Reserve's decision-making, particularly regarding the upcoming jobs report.