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Government shutdowns usually have little economic impact. This time could be different

Historically, U.S. government shutdowns have caused more political drama than economic damage, with minimal effects on markets or growth. Typically, GDP loses just 0.1% per week during closures, and the losses are quickly recouped once government operations resume.

This time may be different because President Trump has threatened to make some federal furloughs permanent. If carried out, this would break precedent, face legal challenges, and potentially destabilize an already fragile labor market—especially in Washington, D.C., where many federal employees work.

Shutdowns normally result in temporary furloughs, but Trump’s plan could cut jobs permanently, showing up in labor data by November. Meanwhile, the shutdown would halt key reports from the Bureau of Labor Statistics, delaying or reducing the quality of economic data used by the Federal Reserve and others. Social Security recipients could also see delays in cost-of-living adjustments tied to inflation data.

Most economists still expect limited overall economic impact, but the risks are greater this time: prolonged uncertainty, delayed federal data releases, and potential long-term damage to the labor market if permanent cuts occur. Read More.

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Investors dumped U.S. assets overnight in favor of gold, Bitcoin, and foreign stocks as government shutdown leaves Wall Street ‘flying blind’

The U.S. government shutdown sent S&P 500 futures down 0.55% early this morning, mainly because the Bureau of Labor Statistics halted jobs and inflation data releases, leaving investors “flying blind.” While Asian and European markets rose, the dollar dipped but recovered most losses, and gold (+1.1%) and Bitcoin (+2%) jumped as safe-haven plays.

Analysts warn that a short shutdown may only be a blip, but a prolonged one—especially alongside Trump’s threatened mass layoffs—could shave 0.1–0.2 percentage points off GDP per week, potentially forcing the Fed to cut rates earlier than expected.

For now, sentiment remains cautious but calm: history shows shutdowns often add volatility without derailing markets, with equities sometimes finishing higher. Read More.