The US government has shut down for the first time in nearly seven years, after Republicans and Democrats failed to agree a deal to keep the federal government funded.
A final round of voting in the US Senate on Tuesday failed to pass proposal to keep the government funded beyond midnight.
The shutdown will hit some public services and lead to hundreds of thousands of federal workers being furloughed. It will also delay the release of vital data on the US economy.
Here is what you need to know.
READ MORE
Why has the US government shut down?
Each year, Congress must pass spending bills by October 1st, the start of the fiscal year, to fund government departments and federal agencies.
Because no appropriations bills have been passed for the upcoming fiscal year, lawmakers must agree to a stopgap measure to keep the government running.
The White House and Republican lawmakers have led the charge for what they are calling a “clean” continuing resolution, or CR, which would keep federal funding at current levels until November 21st.
But Democratic lawmakers have resisted signing on to the Republican plans, arguing any deal should also include a permanent extension of health insurance subsidies that are set to expire at the end of the year.
US president Donald Trump on Monday afternoon met Republican Senate majority leader John Thune, Republican speaker of the House Mike Johnson, Democratic Senate minority leader Chuck Schumer and his House counterpart Hakeem Jeffries in an eleventh-hour attempt to broker an agreement.
But the lawmakers emerged from the White House meeting no closer to a deal, with each side blaming the other for the impasse.
What happens when the US government shuts down?
In a shutdown, the federal government stops all “non-essential” functions. Historically, that has led to the furloughing of hundreds of thousands of federal workers and the closure of many government facilities, including national parks.
In the last government shutdown – from December 2018 to January 2019, during Trump’s first administration – some 800,000 government employees were sent home.
Employees whose work is deemed “essential” are required to report to work, often without pay, until a shutdown ends. Essential government workers include active-duty military members and federal law enforcement officers.
But the White House – which has taken major steps towards reducing the size and scope of the federal government with the so-called department of government efficiency – has suggested this shutdown could be different. It has indicated federal departments and agencies should consider firing employees, rather than temporarily furloughing them.
In a memo circulated last week, the Office of Management and Budget told federal agencies to “use this opportunity to consider reduction in force”, or permanent lay-offs.
How will the shutdown impact the US economy?
The non-partisan Congressional Budget Office (OMB) estimated the last shutdown – the longest in US history – reduced economic output by $11 billion, including $3 billion that the US economy never regained.
Economists have warned the OMB’s suggestion to use the shutdown to fire more federal workers could pose a threat to the weakening US labour market.
While this could be economically disruptive, Andrew Hollenhorst, economist at Citi, cautioned it was “unclear how many workers would be permanently laid off”.
A shutdown would also lead to the temporary closure of the Bureau of Labor Statistics, delaying the release of the September jobs report – crucial economic data that is set for release on Friday. The report includes the latest figure for non-farm payrolls as well as the unemployment rate.
The jobs report is expected to influence policymakers at the US Federal Reserve ahead of their October meeting. Many investors were anticipating another quarter-point cut to the central bank’s benchmark federal funds target range.
While the jobs report matters for the Fed, officials have alternative sources – such as private sector data and information collated from the 12 regional central banks – to inform them of the health of the US labour market.
Meanwhile, investors have held off making large moves as the possibility of a shutdown has risen.
“Markets and the Fed are flying blind,” said Gennadiy Goldberg, head of US rates strategy at TD Securities. “Everyone is waiting and watching to see what will matter ... typically shutdowns don’t affect markets much, but this one might.” – Copyright The Financial Times Limited 2025
