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Higher stakes, a Fed 'flying blind,' and a 'data desert': Why this government shutdown would actually matter.
general :: 2025-09-29 :: source - yahoo finance
By Brett LoGiurato
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It's hard to believe, but we've made it almost seven years without a government shutdown. That shutdown happened during President Trump's first term. And it was the longest in US history.
Ever since, throughout the rest of Trump's first term and under former President Joe Biden, we've been in a perennial state of "will they, won't they?" For the most part, investors and the market have become desensitized to the drama after a string of last-minute compromises to avert the self-inflicted wound.
But we're here to tell you that this time really could be different. It will (again, probably) actually matter, even with the usual caveats: Past shutdowns have represented a modest hit to economic growth, and little if any longer-term pain for markets, which rightfully don't typically care.
The first reason it will matter is that — stop us if you've heard this before — it looks all but certain to happen. The government will enter a partial shutdown just after midnight on Wednesday, Oct. 1, and both Trump/Republicans and Democrats are digging in on their respective positions. Moreover, as Yahoo Finance's Ben Werschkul has outlined, both parties see some political upside.
Democrats are holding firm on a demand to include an extension of expiring healthcare subsidies in an attempt to head off a surge in Obamacare-related insurance premiums.
Trump initially appeared open to negotiations with Democratic leaders this week, then abruptly scrapped a planned White House meeting. The discussions are now back on, with the top four congressional members from both sides set to meet the president on Monday at the White House.
In the meantime, the Trump administration has upped the ante by making good on a threat Democrats were concerned about earlier this year: The White House, in a memo, asked federal agencies to explore mass firings if the government shuts down, particularly in programs deemed "not consistent with the President’s priorities."
Read more: How a government shutdown would affect your student loans, Social Security, and more
Senate Minority Leader Charles Schumer at the Capitol on September 19. (Tasos Katopodis/Getty Images). Tasos Katopodis via Getty Images
That raises the stakes — not only for Trump's continued bid to reshape the government in his image, but for the US labor market as a whole. The federal workforce has been shrinking this year, part of a broader slowdown in the jobs market.
And the shutdown could also mean we don't find out whether that slowdown has continued — or whether inflation continues to pick up steam.
Yes, the Bureau of Labor Statistics — already facing its own headwinds — would likely delay or altogether halt the release of key data like the jobs report, the Consumer Price Index, and the Producer Price Index. That could mean the Federal Reserve is "flying blind" in a "data desert," as Nomura research analysts put it, ahead of its next meeting at the end of October.
At such a precarious time, the possibility of the Fed having to set policy without fresh readings on jobs or inflation underscores how unusual and risky this standoff could be.
Turning the wheel left in the dark without headlights obviously raises the possibility of an unpleasant surprise down the road. But counterintuitively, it could lower the uncertainty in the near term, as no data would mean sticking to the current roadmap.
"The bar is high for the Fed to disregard its own Summary of Economic Projections (SEP) and keep rates unchanged or cut by 50bp in October," the Nomura team wrote. "A shutdown would make following the SEP even more likely, as it would deprive the Fed of a potential rationale for not cutting in line with it."
If that happened, you'd be able to hear the collective market drumroll when the data spigot comes back on, illuminating the road once again. And perhaps a sigh of relief if we're on it.
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