Focus Perspectives: What a Government Shutdown Could Mean for Markets

October 1, 2025

Focus Perspectives | What a Government Shutdown Could Mean for Markets

September 30, 2025

The U.S. government looks set to shut down tonight, as policymakers are unable to come to an agreement on funding. This would be the 22nd shutdown since 1976. While some have lasted as short as a single day, the longest shutdown was the most recent—in 2018 to 2019—lasting 34 days.

Potential impact on markets

Government shutdowns tend to make more noise than impact. Markets have tended to ignore short shutdowns and barely budged on those that lasted longer than five days. The one major exception was that 2018-2019 experience, when markets happened to be rallying strongly off of late 2018 lows. That episode was an outlier, and we think you should exclude it when looking at averages.

Longer standoffs can dent tourism around national parks, but the effect has never been large enough to really move GDP. Retroactive pay for federal employees has also blunted the broader spending impacts in the past.

What could make this time different

We think three things:

Furloughs that turn into permanent layoffs. The government has already aggressively reduced headcount this year. Does the administration take this as cover to do more?
If there’s no retroactive pay for federal workers. Historically, as part of the reopening, Congress is authorized to pay federal workers during the shutdown period. Could this be another cost-saving technique?
A protracted standoff where neither side comes to the table. Looking at betting odds this morning, there’s little consensus on whether this resolves quickly or stretches for weeks.

We think the best place to look for stress is going to be the bond market, and right now, we don’t see significant concern.

While shutdowns tend to echo in politics, the noise quickly dissipates in the markets.

If you have any questions, please reach out. We’re here to help.

Sources: Morningstar, S&P

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Focus Perspectives: What a Government Shutdown Could Mean for Markets