With a matter of days remaining in the fiscal year and no full-year funding or stopgap deal in place, the U.S. government could shut down at 12:01 a.m. ET on Oct. 1, stalling vital services, furloughing hundreds of thousands of federal workers and weighing on the economy if lawmakers fail to reach a last-minute compromise.
Why Is A Government Shutdown Likely?
The House passed a continuing resolution (CR) last week to temporarily fund the government, but the Senate rejected the measure, and both chambers have been in recess.
They are scheduled to return just before the Sept. 30 deadline, leaving little room for negotiation.
On betting markets like Kalshi, the probability of a shutdown this year has soared to 82%, with a 67% chance it begins as early as Wednesday. Federal agencies have already begun preparing for a lapse in appropriations, which may include layoffs or furloughs.
What Happens During A Government Shutdown?
If Congress fails to pass a CR or a full-year appropriations bill, non-essential government functions will halt.
This includes services across agencies like the Food and Drug Administration, Social Security offices and public health programs.
All federal workers -- both those furloughed and those still working -- won't receive pay until the government reopens.
That includes active military members, air traffic controllers, TSA agents, and more. In 2019, during a 35-day shutdown, many federal workers were forced to turn to food banks or short-term loans to get by.
How Bad Could This Be for the Economy?
According to Bank of America economist Aditya Bhave, the economic toll will hinge on how long the shutdown lasts and whether it is full or partial.
Because Congress has not passed any appropriations bills for fiscal-year 2026, the shutdown would be full -- similar to October 2013 -- and may affect up to 900,000 employees, though the actual number could be smaller due to early retirements and administrative leave programs.
Federal civilian compensation accounts for 1.2% of GDP, and if 40% of these workers are furloughed, the direct economic drag would be about 0.1 percentage points per week. A two-week shutdown, for example, would shave about 0.2 percentage points from quarterly growth.
That said, much of this economic activity is usually recovered in the following quarter when government operations resume and workers receive back pay -- though the lost output itself is never fully recaptured.
What If It Drags On Or Leads To Layoffs?
If the shutdown exceeds a month, there's a higher risk of broader economic spillovers, including reduced consumer spending due to missed wages and delayed government investments.
An even bigger risk would be a reduction in force, or permanent layoffs. The Office of Management and Budget has told agencies to prepare for that scenario.
If furloughed workers lose their jobs entirely, the impact could be more lasting, particularly in the Washington, D.C. metro area, where federal employment is concentrated and job openings have slowed significantly.
Bhave said that if workers are permanently laid off, the unemployment rate would likely rise and GDP would face a more persistent drag.
Will It Affect Markets or the Fed?
While short-term shutdowns rarely roil financial markets, delays in economic data releases could hinder the Federal Reserve's decision-making.
The September jobs report, due Oct. 4, would likely be delayed, depending on how long the shutdown lasts.
This would complicate the Fed's assessment ahead of its October 29 meeting, though analysts still expect the central bank to receive most critical inflation and labor data if the shutdown is brief.
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