A government shutdown occurs when the U.S. Congress fails to pass the necessary appropriation bills to fund federal government agencies and operations. This leads to the cessation of non-essential government functions.
Current Situation:
As of early October 2025, the U.S. federal government has entered a shutdown due to a failure by Democrats and Republicans to agree on extending government funding. The primary point of contention is healthcare funding, specifically the extension of Affordable Care Act (ACA) premium tax credits and the removal of cuts to Medicaid. Republicans have proposed funding the government at current levels until November 21, while Democrats seek a shorter-term bill with concessions, including the health insurance tax credits.
Consequences of a Government Shutdown:
* Furloughs and Unpaid Workers: Many federal employees are furloughed, meaning they are sent home without pay. Essential employees, such as air traffic controllers and law enforcement, continue to work but do not receive pay until the shutdown ends. The Congressional Budget Office (CBO) estimated that around 750,000 federal employees could be furloughed, costing approximately $400 million per day in compensation, though they typically receive back pay once the shutdown concludes.
* Disruption of Services: Non-essential government services are temporarily halted or reduced. This can lead to delays in processing applications for passports, small business loans, or government benefits. National parks may have closed visitor centers and bathrooms. Food-safety inspections may be fewer.
* Economic Impact: Government shutdowns have a negative impact on the economy. The CBO estimated that the five-week partial shutdown in late 2018 and early 2019 reduced GDP growth by 0.1% in the fourth quarter of 2018 and 0.2% in the first quarter of 2019, with some lost GDP never being recovered. Longer shutdowns can also negatively affect private-sector investment and hiring decisions. S&P Global Ratings Economics estimates that the current shutdown could trim GDP growth by 0.1-0.2 percentage points for every week it continues.
* Impact on Military and Social Security: While Social Security and Medicare benefits generally continue because they are authorized by laws that don't need annual approval, services offered by Social Security benefit offices may be limited. All military personnel continue their normal duties without pay, and essential civilian personnel also work without pay, while non-essential civilian personnel are furloughed.
* Potential for Layoffs: In an unusual development during the current shutdown, the Trump administration has directed agencies to consider plans for layoffs, which has led to a lawsuit from federal worker unions. The White House has also moved to freeze billions in funding for infrastructure and climate-related projects in certain states.
* Delayed Data: The shutdown can delay the release of important economic data, such as construction spending and jobs reports, which can add uncertainty to the Federal Reserve's monetary policy outlook.