Prepping for a Government Shutdown

Estimated reading time: 3 minutes

October 1 Deadline

The U.S. government is running out of funding, and unless rapid and effective negotiations lead to an agreement soon, Washington is going to partially shut down and disrupt government services starting Sunday, October 1.

The current spending plan is being held up due to demands from House Republicans, including border security and funding for the war in Ukraine. Although a shutdown would likely not be as disruptive to the economy as the debt ceiling drama the U.S. faced a few months ago, it could still have a widespread impact. Federal workers are preparing for the hardest part of it all – getting furloughed.

Bad Timing

If Capitol Hill shutters, many government employees will be left out in the cold, getting furloughed without pay until an agreement is reached. This doesn’t affect every government worker. In the case of the military, for example, personnel will remain on their posts but roughly half of the Pentagon’s civilian workforce is looking at being furloughed.

This is coming at a particularly tough time for American families who are struggling with high costs following the pandemic-era inflation spike. Historically, government workers have received back pay for the duration of shutdowns, but first they have to bridge the days without a paycheck.

The shutdown could also delay approval of licenses, permits, and passport applications, as well as releases of economic reports like inflation readings and employment data. The latter is especially noteworthy, as those reports provide key insights that influence the Federal Reserve’s policy decisions.

On the bright side, a shutdown would not impact on Treasuries and Social Security payments. Moreover, the impact on the U.S. stock exchange is likely to be small, especially if the potential partial shutdown doesn’t last very long. The average shutdown lasts just 8 days.

Shutdown Likelihood

If Congress can come to a solution before the deadline the shutdown simply won’t happen. Lawmakers could also kick the can down the road with a short-term continuing resolution — a temporary spending bill allowing government operations to continue until the final bill is approved.

However, a partial shutdown appears to be the most likely outcome with every day that the stalemate continues.

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