Washington: The United States faces a government shutdown unless Congress passes an appropriations bill to fund federal operations. Without this legislation, agencies suspended nonessential activities starting Wednesday at 12:01 a.m. in Washington, DC.
Although Republicans control the White House, the House and the Senate, they cannot pass the bill alone. While the Senate has 53 Republican senators, 60 votes are required to advance the legislation to a vote.
Republicans proposed a short-term spending plan, but Democrats have been leveraging the shutdown to push for the reversal of Medicaid cuts passed in July and the extension of tax credits for government-purchased health coverage. Neither side is willing to compromise, raising the risk of economic disruption.
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Layoffs, Furloughs And Consumer Impact
The federal government is the nation’s largest employer. Agencies were instructed in a recent memo to prepare layoff notices for programmes at risk of losing funding and for operations deemed non-priority. The memo did not clarify which programmes are considered essential.
Experts point out that these cuts, which are known as Reductions In Force (RIFs), require 30- to 60-days notice and could be challenged in court. Even if courts block job cuts, uncertainty may still make federal workers hesitant to spend, particularly on major purchases. Consumer spending could decline as a result.
The memo did not specify the number of potential job cuts. Over 150,000 federal employees are also expected to leave after accepting buyouts this year, marking the largest reduction in federal staffing in nearly 80 years.
In addition to permanent layoffs, furloughs will also continue for nonessential workers until Congress passes a funding measure. These workers have stopped receiving pay while the government remains closed.
Economic Data Delays
The Department of Labor had scheduled key reports this week. The Jobs Openings and Labor Turnover Survey (JOLTS) showed a decline of 114,000 hires to 5.1 million in August. Job openings rose slightly to 7.2 million.
A shutdown would delay weekly jobless claims on Thursday and the monthly jobs report on Friday, which measures job creation, sector growth and unemployment. A delay could leave the Federal Reserve with less information for rate decisions, although the Fed’s next policy meeting is at the end of October.
Recent economic trends show a softening labour market. In August, the economy added only 22,000 jobs, prompting the Fed to cut interest rates by 25 basis points in September. Analysts highlight that the timing of this shutdown comes during a fragile economic period, with inflationary pressures from tariffs still present.
Market Reactions
Government shutdowns have historically had limited effects on financial markets because investors expect them to be short-lived. Market participants tend to assume any temporary slowdown will reverse once the government reopens.
This shutdown, however, carries additional risks. The administration is planning to slash jobs rather than only furlough workers. Combined with tariff-related pressures, businesses may face heightened uncertainty.
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