US shutdown and its market impact
By the OFX team | 9 October 2025 | 6 minute read
The US government shutdown – the first such event in more than six years – rolls on, as politicians debate over federal funding. The current shutdown, which began on October 1, is the 11th time that the US government has “run out of money” – as the headlines like to put it. The actual cause is more mundane – Congress failed to enact the funding legislation required to finance the federal government before the next fiscal year begins.
A recurring issue in US politics
It is the second shutdown under President Donald Trump, who presided over the longest shutdown to date, a 35-day freeze in 2018-2019 during his first term: the pretext then was Trump’s demand for US$5 billion to pay for his promised border wall with Mexico. But shutdowns have been a bipartisan effort: they have also occurred under Presidents Obama, Clinton, Reagan and Carter, although some of those have lasted mere hours.
Government shutdowns are a relatively recent development; they first began as the result of the Congressional Budget Act of 1974. Since then, Congress has failed to authorise funding for the federal government on 21 separate occasions – but only 11 of those occasions caused government-funded services to close and public servants considered “non-essential” be “furloughed,” that is, placed on indefinite leave without pay.
Limited market impact so far
The shutdown betting market is potentially more exciting than the FX market’s view. The shutdown itself has had minimal impact on the US dollar: the dollar index eased by 0.4% on the day it took effect, but at time of writing, the index is up by 0.6% in the five days since then.
On other markets, the S&P 500 and Nasdaq have both reached fresh record highs during the shutdown, helped in part by OpenAI’s secondary share sale: while the company is not listed, Microsoft and Nvidia both have exposure to it, and the latter has also hit a new all-time high.
On the bond market, the 10-year yield came in from levels around 4.17% to move below 4.08%, in what was seen as safe-haven inflows, but the yield has returned effectively to where it was.
One clear beneficiary appears to be Bitcoin, which touched a record high over the first weekend of the shutdown, hitting $US125,245. Benefiting from retail investors buying it as a hedge against growing US deficits and higher inflation, to the tune of a 2.5% rise since the shutdown started. Gold, too, appears to have had a push along for similar reasons, gaining 2.2%.
Economic data releases on hold
The shutdown also affects the markets in the sense of what does not happen during it, too. US government agencies that normally produce economic data – such as the Labor Department1, the Bureau of Labor Statistics and Bureau of Economic Analysis – are furloughed, and will not publish while the shutdown is in place.
This limbo has already seen the closely-watched report on jobs and unemployment, usually delivered on the first Friday of a new month, covering the previous month, missed for September on October 3. Markets have had to make do with private surveys, such as the Dow Jones consensus forecast of economists, surveys from Federal Reserve branches (some of which will publish during the shutdown, while others will not), the labour market data surveys published at job postings site Indeed2, and the monthly report on private-sector jobs from ADP Research and the Stanford University Digital Economy Lab.
Economic growth and Federal Reserve outlook
Before the shutdown, markets were digesting the late-September revision that showed the US economy grew at an annual rate of 3.8% in the second quarter of 2025 – previously reported by the Bureau of Economic Analysis as 3.3% growth – and rebounding from a 0.6% decline in gross domestic product (GDP) in the first quarter.
The figure, the fastest growth since the third quarter of 2023, was revised upwards due to an increase in consumer spending, and was broadly taken as a sign that the economy is staying resilient in the face of headwinds from tariffs. With this indication that the economy is holding-up better than expected, market expectations shifted toward the possibility that the Federal Reserve may hold-off on further interest-rate reductions this year; the delayed September jobs data is expected to factor into this decision.
Policy implications and workforce reductions
There is a lot more to play out in the political debates around the shutdown, given that President Trump campaigned last year on reducing the size of the federal payroll as a front in his proposed war on the US deficit. While the federal government has shut down many times in the past and furloughed federal employees, “this time is unique,” says the non-partisan think tank the Partnership for Public Service3, which believes that the future of the USA and its democracy depend on the country’s ability to solve big problems – and that the country needs an effective federal government to do so. “Previously, agencies have tried to minimise service disruptions and have brought back employees after a shutdown has ended, but the Trump administration this time has said it plans to use the current crisis to fire additional civil servants,” the group says – indeed, the Trump administration has already reduced the federal workforce by more than 200,000 employees.
Ultimately, the unsustainable path of the US budget deficit – and its national debt, which is the accumulation of all past deficits – may become an influential factor for the US dollar and the bond and share markets. The US federal government hasn’t balanced its budget since 2001, and the national debt exceeds 120% of GDP.
Long-term risks to US markets
Government shutdowns are highly partisan and emotive affairs, and the arguments this time do at least touch on President Trump’s 2024 campaign theme of attempting to tackle Washington’s out-of-control spending, and the rising entitlement costs that are such a major factor in the official profligacy. If the US keeps spending money that the Treasury does not have, bond investors may want a premium, and asset investors may look for protection from the potential devaluation of money. Regardless of when the US federal workforce returns to work, those are the forces that are likely to remain key factors influencing the US dollar, bond, and share markets.