From Mass Firings to the Fed—Why This Government Shutdown Could Be Different

A federal shutdown is looming over Washington once again—and this one could get ugly if lawmakers fail to ink yet another eleventh-hour deal to keep the government funded.

President Donald Trump met with top lawmakers on Monday, but deliberations between Democrats and Republicans failed to reach much progress that’d alleviate shutdown concerns. If they don’t reach a deal, a shutdown will kick in Wednesday after the clock strikes midnight.

Much of the debate falls on healthcare, specifically expiring funds established under the Affordable Care Act that will cause insurance premiums to soar, in addition to reversing cuts to Medicaid. Democratic lawmakers want to extend funding to keep health care costs lower, while Republican lawmakers are seeking to cut medical funding to help pay for tax cuts instead.

Trump acknowledged the possibility of a shutdown in an interview with NBC. He also directed federal agencies to provide a list of permanent staff cuts in the event of the government does shut down. This strays from the usual furloughs that transpire when the government shuts down.

But it’s not entirely offbeat for an administration that plans to cut more than 300,000 federal jobs by the end of the year. The workforce restructuring plan was largely outlined by the Heritage Foundation’s Project 2025, which is seen as a blueprint for many of the administration’s policies including the mass-consolidation of the federal government.

“The Democrats response to Trump’s threat [is …] we’re not taking that seriously because you’ve been doing this all along,” says Thom Hartmann, a political commentator and host of The Thom Hartmann program, a radio show. “And anybody that you’re going to fire as a result of this threat is probably somebody you’re going to fire anyway once you get around to it.”

The economic impacts of a shutdown largely depend on how long one transpires. In usual shutdowns, federal employees are furloughed, but they receive back pay—for that reason, the economic impact is relatively muted, according to Wafa Hakim Orman, an economist and professor at the University of Alabama Huntsville’s College of Business.

“There was a lot of inconvenience to people who couldn’t access any federal services during the shutdown, but past that inconvenience, it wasn’t a major lasting economic impact of any kind,” Hakim Orman says. But Hakim Orman explains the potential for permanent layoffs may have more lasting consequences, depending on size.

The shutdown may also impact the publication of a much anticipated jobs report from the Bureau of Labor Statistics set to be published on Friday, as most federal services that are considered non-essential get put on ice. In August, Trump fired the previous BLS commissioner accusing them of producing a “rigged” report to make the administration look bad.

The jobs report is one key indicator that the Federal Reserve—which stays open during a shutdown since it operates independently—turns to when orchestrating monetary policy. If the shutdown stretches out more than two weeks, the reports delay could complicate the upcoming Fed meeting which starts on Oct. 28, says George Mateyo, Chief Investment Officer at Key Private Bank. Mateyo adds a delay in the jobs report could push the Federal Reserve to pause rather that cut interest rates in October.

“That said, there are other data points that the Fed considers in its interest rate policy decisions,” Mateyo adds. “If they suggest a significantly weaker outlook for employment, the Fed may be inclined to move forward with its cutting cycle.”