Conference Presentation, Interview, Other
The Shutdown’s Economic Impact
- The current government shutdown is projected to be broader and more severe than previous ones, with a significant probability of lasting two weeks or longer, though a resolution remains possible within a few days to two weeks due to the specific policy issues involved.
- The most critical potential catalyst for ending the shutdown is identified as October 15, the date active-duty military pay is due, with a secondary risk of a full missed pay cycle for federal employees later in October causing service disruptions if the impasse continues.
- Economic impacts are contingent on duration: a three-week shutdown is expected to reduce Q4 annualized GDP by approximately 0.3 percentage points, with a corresponding boost of the same magnitude in Q1 upon resolution, while a month to six-week duration would significantly affect federal contractors, SEC IPO approvals, and construction permits.
- Data release schedules face substantial delays tied to the shutdown length, with releases potentially pushed back by the duration of the closure plus a few days, and if the shutdown reaches mid-October, surveys for the early November report may be missed, affecting data availability for months.
- The federal workforce furlough of roughly 600,000 employees is expected to increase the unemployment rate by approximately 0.1 percentage point.
- Federal Reserve policy outlook suggests interest rate cuts are likely under most scenarios: a few-week shutdown favors a cut at the next meeting, a negative Q4 quarter reinforces calls for two additional cuts this year, and two more cuts are projected for next year, even if missing data during an extended shutdown creates uncertainty for policymakers.