What an extended government shutdown could mean for the US
Long-term outlook 'murky' in terms of Fed policy direction.
With the US Congress continuing to face a deadlock over the new fiscal year's funding, experts are weighing in on what a lengthy government shutdown could mean for the country's prospects.
Fitch Ratings noted that a prolonged federal government shutdown would worsen pressures on tax revenues whilst potentially creating additional service demands in the District of Columbia.
The credit rating agency also pointed to possible "negative credit ramifications" for US public finance issuers, particularly those that depend on federal healthcare, housing, and higher education funding.
"The macroeconomic impact of a shutdown is limited in the near term," Fitch Ratings stated.
"However, a protracted disruption, particularly if accompanied by significant funding withdrawals or workforce reductions, could slightly slow US economic growth."
It said lasting declines in tax revenues could be seen in localities with the highest proportion of federal workers, in the event of permanent staff cuts.
On the jobs front, J.P. Morgan's Michael Feroli commented: "The impact could be worse this time due to the threatened layoffs and actual job loss, which could create risks for the labour market and consumer spending."
The chief US economist highlighted that a government shutdown subtracts approximately 0.1% of annualised gross domestic product every week. The current federal funding gap began on 1 October 2025.
According to J.P. Morgan, the continued absence of key economic data (publication is delayed due to agencies' suspended operations) means a 'murky' outlook in the longer term.
Jay Barry, head of Global Rates Strategy at J.P. Morgan, had this to say: "It's going to be challenging to discern what this means for the direction of Fed policy.
"If the shutdown is lengthier, it could muddy the waters about how markets price the likelihood of any rate cuts past December."
Feroli added: "For as long as the government shutdown goes on, we will be operating a little bit blind."
