The first federal government shutdown in years began early Wednesday morning after lawmakers and President Trump stopped negotiations and spent the final hours before the stoppage largely focused on trying to set up the other side to take the political blame.
The victory of gridlock was sealed Tuesday evening when twin Senate votes failed to advance either a Republican bill (even as three members of the Democratic caucus crossed party lines to vote yes) or a Democratic plan. No compromise plan was offered, ensuring the funding lapse.
The shutdown — the first since a seven-week stoppage during Trump’s first term — began at 12:01 a.m. ET as the new fiscal year began. That last shutdown took place in 2018-19 and broke the record for the longest in American history.
Federal agencies will now implement their contingency plans and send hundreds of thousands of government workers home to wait out a stalemate.
Economic effects might be noticeable quickly as government spending largely ceases and economic data gets delayed, starting this Friday with what was scheduled to be a jobs report from the Bureau of Labor Statistics. These impacts could be mitigated if the stoppage ends promptly.
President Trump at the White House on Tuesday. (AP Photo/Alex Brandon) ·ASSOCIATED PRESS
Trump on Tuesday also promised to heighten the potential effects of a shutdown — in part to pressure Democrats — saying “we can do things during the shutdown that are irreversible.”
He added later in the day “a lot of good can come down from shutdowns. We can get rid of a lot of things that we didn’t want.”
The shutdown is also not the only Washington policy focus for investors Wednesday. Markets will also be digesting new tariffs, as promised duties of 100% on a slice of pharmaceutical products and 25% duties on heavy-duty trucks are scheduled to go into effect.
This week also marked the last formal day on the job for government employees who accepted a Department of Government Efficiency program earlier this year called “fork in the road” that induced tens of thousands to leave government service.
Investors trying to make sense of these varied crosscurrents coming from Washington will likely be most attuned to how long this shutdown lasts and whether policymakers can find any off-ramps to end the gridlock.
As Veda Partners co-founder Henrietta Treyz noted Tuesday afternoon on Yahoo Finance Live, the duration of the shutdown has come increasingly into focus as “the question of the hour,” as another round of votes in the Senate were quickly scheduled for Wednesday.
Senate Majority Whip John Barrasso also told reporters Tuesday that votes could be scheduled throughout the weekend.
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The stalemate could produce unpredictable economic impacts, some of which could be felt quickly and others that could grow with each passing day.
Much of the immediate market focus is on the government’s economic data.
The Bureau of Labor Statistics (BLS) is one of the government’s main collectors of data and will “completely cease operations,” according to its contingency plan, and temporarily go from a workforce of 2,055 to just a single full-time employee.
The agency’s fulsome calendar of economic releases will grind to a stop — starting with Friday’s report on employment known within the financial world as the monthly jobs report.
The plan is similar at other sources of government economic data as the Commerce Department is set to cease operations at both the U.S. Census Bureau and Bureau of Economic Analysis.
A sign at the then-closed National Archives building is seen in December 2018. (ANDREW CABALLERO-REYNOLDS/AFP/Getty Images) ·ANDREW CABALLERO-REYNOLDS via Getty Images
One new feature around this shutdown that could add more economic uncertainty is a White House promise to consider mass firings if there is no deal.
Trump has repeatedly promised such moves are in the offing even as the government contingency plans offered little insight into specifics.
A Bloomberg review of contingency plans for two thirds of the federal workforce found plans for more than 400,000 employees to be sent home and temporarily furloughed but almost no references to any sort of permanent staffing reductions.
During this shutdown, the country could also wrestle with a host of familiar effects seen in previous stoppages. A shutdown will leave government employees, including military personnel, temporarily without a paycheck but many being asked to continue reporting to work.
A perennial public-facing example of this dynamic is at airports, with both air traffic controllers and Transportation Security Administration (TSA) agents expected to continue being asked to work, even as their paychecks stop.
The 2018 shutdowns saw higher-than-normal unscheduled absences — especially among the TSA workforce — leading to some disruptions.
As with past shutdowns, Medicare benefits and Social Security checks will continue going out.
The mail will also still be delivered, as the US Postal Service is largely self-funded through the sale of stamps.
The largely self-funded Federal Reserve will also be able to continue operations but could see its interest rate deliberations set to take place at the end of October complicated if the blackout on government data lasts that long.
House Minority Leader Hakeem Jeffries is joined by fellow House Democrats outside of the Capitol hours before the midnight shutdown deadline. (Kevin Dietsch/Getty Images) ·Kevin Dietsch via Getty Images
Economists following the shutdown drama this week are also focused on another policy front: the flurry of tariff pledges from Trump, starting with today’s promised duties on pharmaceutical products and heavy-duty trucks.
The promise there is for 100% duties on branded or patented pharmaceuticals products but with significant loopholes that could severely limit any effects.
For one thing, Trump has pledged to carve out a full exception to any company “building” in the United States without offering a detailed definition there.
Pfizer (PFE) also just this week secured a three-year grace period from Trump’s promised tariffs on pharmaceuticals as part of a deal aiming to lower some US drug prices with Trump promising Tuesday that more could be in the offing.
Trump has also promised 25% tariffs on heavy trucks, saying it was “in order to protect our Great Heavy Truck Manufacturers from unfair outside competition.”
The country most closely watching this move is Mexico with the White House yet to clarify if the United States-Mexico-Canada Agreement (USMCA) will provide an exception there.
Today’s tariffs are set to be followed on Oct. 14 by 10% duties on “softwood timber and lumber” and 25% rates on “certain upholstered wooden products.” Rates there could jump again next January, according to a White House release.
Trump has also recently promised 100% tariffs on “any and all movies that are made outside of the United States” as well as “substantial Tariffs on any Country that does not make its furniture in the United States” but without clarity about how or when he will proceed there.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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