Markets Waver as Record-Long U.S. Government Shutdown Enters 37th Day
Political deadlock over funding deals a blow to investor confidence, with economists warning of a material hit to fourth-quarter GDP as the stalemate drags on.
Investor anxiety is growing on Wall Street as the U.S. government shutdown stretched into its 37th day, officially becoming the longest in the nation's history with no clear resolution in sight. The prolonged political stalemate is beginning to ripple through the economy, threatening to curb growth and injecting a significant dose of uncertainty into markets.
The impasse, which has left hundreds of thousands of federal employees furloughed or working without pay, is prompting economists to reassess their growth forecasts. The Congressional Budget Office (CBO) has issued a stark warning, estimating that a four-week shutdown could trim the nation's fourth-quarter economic output by a full percentage point. Should the closure extend to eight weeks, that figure could double to a two-percentage-point reduction, translating to billions in lost GDP.
The direct economic impact is becoming more visible. The Federal Aviation Administration (FAA) has ordered a 10% reduction in domestic flights at 40 major airports to manage staffing shortages, a move that signals deepening disruption to commerce and travel. The shutdown's toll is substantial, with an estimated 670,000 to 730,000 federal employees furloughed, according to public service data, compounding the economic drag.
At the heart of the deadlock is a deeply divided Congress. Reports from Washington indicate that Senate Democrats are poised to block the latest Republican proposal to fund the government. The negotiations have been complicated by disputes over long-term appropriations bills and expiring health insurance subsidies, creating a legislative standstill. While Senate Republicans are reportedly trying a new strategy to pass a continuing resolution, its prospects in the House remain uncertain, according to CBS News.
For investors, the primary concern is the erosion of confidence and the delay of critical economic information. Key data releases, including the jobs report and the Consumer Price Index, have been postponed. This information vacuum complicates decision-making for the Federal Reserve, which relies on such data to guide monetary policy. Analysts at Morgan Stanley have noted that while markets often dismiss short shutdowns, the current protracted event could have a more significant impact due to heightened political polarization and an economy more sensitive to external shocks.
Historically, the market's reaction to shutdowns has been relatively muted, with investors typically focusing on broader economic fundamentals. However, the unprecedented length of the current closure is testing that resilience. During the previous record-long shutdown in 2018-2019, the S&P 500 experienced a correction, and J.P. Morgan notes that prolonged political uncertainty can weigh on both investor and consumer sentiment.
As Washington's stalemate continues, the market is bracing for further volatility. Until a political compromise is reached, the shutdown will remain a significant headwind, threatening to undermine an already fragile economic landscape and keeping investors firmly on edge.