U.S. Government Shutdown Update

U.S. Senate narrowly passes short-term funding bill to reopen the government 

• The U.S. Senate narrowly passed a bipartisan deal that would end the federal government shutdown, which began on October 1st. Eight moderate Democratic Senators broke ranks and voted in favor of the bill, providing the 60-vote majority required to advance the continuing resolution (CR) through the Senate. 
  
  • The bill will now go to the House of Representatives for a final vote later today, where it is likely to pass. 
• On the surface, the Senate's bill doesn't appear notably different than the original continuing resolution that passed through the House on September 19th. Government funding will be extended at current levels through January 2026, though the CR also included three of the twelve appropriation bills which will extend funding for the full fiscal year (i.e., legislative branch, military construction/Veteran affairs, and Agriculture (including SNAP & FDA)). Furloughed federal employees will also receive backpay through October 1st. 
• Notably, the Senate's bill did not include a key demand of the Democrats: an extension of the Affordable Care Act (ACA) tax credits, which are set to expire on December 31st, 2025. However, the Republican's agreed to a separate vote in December to extend the ACA subsides. 

Key Implications

• A resolution finally appears in sight for what has become the longest federal government shutdown in U.S. history. However, this very much feels like another patch solution from lawmakers. The continuing resolution only extends funding for much of government through the end of January, with nine of the twelve appropriation bills still to be passed. This means there's a very real risk of a partial government shutdown come February, particularly if negotiations on the ACA subsidies were to fall apart. 
• It's too early to say what the full economic impact of the shutdown will be, but the Congressional Budget Office estimates that a six-week shutdown could shave as much as $18 billion or over a full percentage point from Q4-25 real GDP growth. However, because the Senate's bill will provide full backpay to all furloughed workers, most (but not all) of the lost output is likely to be recouped in H1-2026. For Q4, growth is likely to slow to around 1% from its current Q3 tracking of +3%. 
• Provided the Senate's bill clears the House, the Bureau of Labor Statistics is likely to be quick to post a revised data release calendar (as was the case following the 2013 shutdown), where it's expected to stagger the September/October economic data releases over the next month. While this will be welcome news to policymakers, we caution that the October data prints could be subject to larger revisions, particularly if there were limitations on data collection as a result of the shutdown. 
• After a bumpy end to last week, financial markets have firmed on the news. The S&P 500 is up nearly 2% on the week, while the 10-year Treasury has retraced a few basis points and currently sits at 4.07%. Fed futures are attaching a 65% probability to another rate cut in December – largely unchanged from last week – but this could quickly swing in either direction following the data deluge.

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