Significant ramifications are in store for federal workers, the Federal Reserve, and the economy if the government shuts down, as it looks increasingly likely to do.

The severity of the effects of a government shutdown would depend on its length.

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Since 1980, there have been 14 government shutdowns, the longest of which began in December 2018 and lasted for 34 days. Mark Hamrick, senior economic analyst at Bankrate, said that the economic fallout varies from shutdown to shutdown.

“Everyone is different, and some may last longer than others,” he told the Washington Examiner. “You know, the hope is that it can be averted, because they tend to be counterproductive for the U.S. economy.”

Federal workforce

The most obvious effect of a shutdown will be on the federal workforce. Hundreds of thousands of federal employees will be furloughed if government funding lapses, meaning that pay for those employees won’t be paid until Congress acts to resolve the shutdown. Goldman Sachs researchers said in a research note that they expect some 900,000 federal employees to be furloughed.

If the work stoppage continues for a long time, workers could start feeling the pinch, especially if they don’t have enough savings to make up for the lost revenue stream.

Still, Alex Conant, a GOP strategist and a partner at Firehouse Strategies, pointed out that there are ways for furloughed staffers to secure short-term loans and help during shutdowns. He mentioned that, traditionally, banks and credit unions were happy to do so.

“I recall when I worked in the Senate in 2013, we had the Obamacare shutdown; there were lots of services for people who needed help making a rent payment at the end of the month,” Conant said.

But this time around, another factor is at play — the potential for permanent job loss for some federal employees.

Trump ran on downsizing the federal government and cutting into the administrative state. Through the Department of Government Efficiency and other efforts, his administration has worked to reduce the federal workforce, and last week began threatening that a shutdown could be used as a mechanism for firing more workers.

The White House Office of Management and Budget has circulated a memo telling government agencies to prepare “reduction in force” plans in the event of a government shutdown.

The memo directs the agencies to cut jobs that are not “consistent with the President’s priorities” if a spending deal isn’t passed in time.

“If we see a large chunk of the federal workforce permanently fired, it will have a large impact, and we won’t know that impact until the jobs report for October is released at the beginning of November,” Fred Ashton, director of competition policy for American Action Forum, told the Washington Examiner.

Desmond Lachman, a senior fellow at the American Enterprise Institute, said that if the Trump administration starts laying off a lot of federal workers instead of furloughing them, it would represent a drag on the economy.

Local economy

Furloughs and layoffs for federal workers would have knock-on effects on local economies and businesses in areas with a high number of government workers.

For instance, a local coffee shop that works next to a major federal government office might see substantially less foot traffic during a shutdown, which will cut into its profit margins and only be more damaging the longer the government shutdown drags on.

A shutdown is even more damaging to small businesses than it is to federal employees because federal employees will still eventually get paid, but those businesses will not be able to make up for lost customers.

“If you run a deli that primarily feeds federal employees, if they’re not there for a week, that is revenue you never get back,” Conant said.

Local businesses in Washington, D.C., would obviously be disproportionately harmed, but so would companies in other communities around the country with high numbers of federal workers. For example, cities around national parks could see critical streams of revenue from tourist visitors dry up in the case of a protracted shutdown.

Markets and the Fed

The impact in the financial markets could be more pronounced the longer the shutdown drags on and the more uncertainty is infused into the process.

Financial markets have typically shrugged off shutdowns, according to Goldman Sachs. But the group said that 10-year Treasury yields and the dollar have typically declined during periods of a government shutdown.

Notably, the dollar has already fallen since the start of the year. The value of the dollar has dropped over 10% since the beginning of 2025, according to the Bloomberg Dollar Spot Index.

But the bigger concern than the financial markets, which are being scrutinized more closely than during shutdowns in the past, is the status of economic reports.

In the case of a shutdown, the Bureau of Labor Statistics will not be publishing the highly anticipated September jobs report, which is set to be released on Friday. Friday’s report is highly anticipated because recent data indicate that the labor market has been weakening. Investors and the Fed are eager to see if the jobs market has continued to deteriorate.

Other key economic reports, such as the consumer price index, the most tracked inflation gauge, would also not be available.

“It’s not good that everybody would be flying blind,” Lachman told the Washington Examiner.

If the shutdown drags on for a long time, the lack of economic reports would make the central bank’s critical job of determining what to do next with interest rates much more challenging.

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Recently, the Fed announced it was cutting interest rates for the first time in 2025, in large part because of the indications of a weakening job market. The Fed is trying to balance driving down inflation, which is too high, and preventing an economic slowdown or even a recession.

“If we start skipping a lot of data releases, I think that can raise uncertainty, which is always bad for the market,” Conant said.