The US government is heading towards another shutdown as Republicans and Democrats remain deadlocked over the new budget, with the deadline of 1 October just hours away.
Political deadlock in Washington
Disputes over subsidies for Obamacare and cuts to Medicaid have stalled negotiations. President Donald Trump and Vice President JD Vance have blamed Democrats for the impasse.
After talks at the White House ended without progress, Trump accused Democrats of “holding the process hostage,” while Senate Majority Leader Chuck Schumer said the differences remained “huge.”
Democrats are demanding a permanent extension of health insurance subsidies and cancellation of tax-related cuts proposed by Trump. To pass a temporary funding bill, Republicans need at least eight Democratic votes in the Senate – something that currently looks unlikely.
What a shutdown means in practice
A shutdown would trigger temporary mandatory leave for hundreds of thousands of federal employees, while others would be required to work without pay until a deal is reached. Reports suggest the Trump administration is also considering permanent layoffs this time.
Essential services – the military, air traffic control, border security and hospitals – would continue to operate.
Social Security and Medicare payments would not stop, but new applications and card reissues would be frozen.
National parks and agencies such as the EPA and FDA could close or scale back activities.
The Labour Department has warned that the release of crucial jobs data on Friday will not take place if a shutdown occurs.
Market implications
Uncertainty is already affecting Wall Street, where stocks pared gains after it was announced that official data releases would be suspended in the event of a shutdown.
For investors, the absence of key economic figures – especially on employment – makes it harder to assess the economy’s trajectory and anticipate Federal Reserve moves.
The SEC is also expected to halt work, potentially delaying initial public offerings (IPOs). Food assistance programmes such as SNAP are only funded for 30 days beyond the start of a shutdown, raising concerns about vulnerable households.
Could the bubble burst?
The last US government shutdown, in 2018–2019, lasted five weeks – the longest on record. Despite the disruption, markets proved resilient: in four of the last shutdowns lasting more than five days, the S&P 500 actually gained.
But today’s backdrop of slowing growth, inflation, expectations of rate cuts and geopolitical turmoil makes conditions more fragile. With valuations at record highs and warnings of a bubble multiplying, a shock such as a shutdown could trigger the first wave of sell-offs – the “pin” that bursts the bubble.
How the deadlock could end
Analysts suggest the most likely outcome is a shutdown lasting one to two weeks, until a compromise is reached on Obamacare subsidies. In the meantime, markets will be watching closely, as each passing day raises the cost to the economy – and the political risk for the White House.
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