How Does the Government Shutdown Affect the U.S. Economy?

SadaNews - The United States finds itself once again facing a deep political and economic crisis after the federal government has shut down for the first time in nearly seven years, opening the door to a new wave of institutional paralysis and uncertainty about the contours of President Donald Trump's second term.

The shutdown came after Republicans and Democrats failed to reach a compromise on funding the government, which threatens the stability of hundreds of thousands of jobs and places the U.S. economy at risk of incurring high costs.

Read also: U.S. Government Shutdown Goes into Effect After Funding Bill Fails

The U.S. government shutdown is not a new event in the political history of the country. Washington has witnessed 14 similar experiences since 1980, the longest being in the winter of 2018-2019 when federal institutions partially halted for five weeks due to disputes over funding for the border wall. However, the current situation carries greater specificity, as it intertwines with internal thorny issues such as the healthcare system and social support programs, increasing the polarization between the two major parties.

The impact of the shutdown extends beyond the halt of public services or the disruption of employees; it also includes the suspension of the release of sensitive economic data, such as the monthly jobs report and inflation indicators, which could confuse investors’ calculations and pose additional challenges for the Federal Reserve in managing its monetary policy. Thus, the shutdown transforms from a temporary financial crisis into a broader threat that could reflect on the confidence of both U.S. and global markets simultaneously.

What Led to the Shutdown?

The U.S. government closed its doors for the first time in nearly seven years; threatening hundreds of thousands of jobs and opening a new chapter of uncertainty regarding Donald Trump's second term.

The government shutdown, which began just after midnight Washington time, came after Republicans and Democrats failed to reach an agreement on funding the federal government for the new fiscal year.

Federal agencies are expected to initiate widespread layoffs and reduce public services, pushing Washington into one of its biggest political crises since Trump returned to office in January.

In a series of late votes on Tuesday, both Republicans and Democrats in the Senate rejected competing proposals that could have prevented the shutdown, which is expected to result in the layoff of about 750,000 workers and could cost the U.S. economy billions of dollars in lost output.

During the shutdown, the federal government will halt all "non-essential" functions, while employees deemed "essential,