US Gov't Shutdown Paralyzes Washington, Threatens Broader Economic Fallout

A partial shutdown of the US federal government took effect early Saturday after Congress failed to reach an agreement to fund several federal agencies before a midnight deadline, bringing parts of Washington to a standstill and raising concerns about spillover effects on the wider economy.

While the shutdown is expected to last only a few days, economists warn that even a brief disruption comes at a sensitive moment for the US economy, which is already grappling with elevated uncertainty. Still, analysts say the impact is likely to be far less severe than the record shutdown seen last fall.

That assessment rests on two key factors: several major federal agencies have already secured full funding for the remainder of the fiscal year, and the House of Representatives is expected next week to take up a Senate-passed spending bill backed by the White House.

“The overall impact of this shutdown will be fairly limited,” said Rachel Snyderman, executive director of economic policy at the Bipartisan Policy Center.

Departments that will continue operating normally include Agriculture, Veterans Affairs, Interior, Energy, Justice, Commerce and others that have received full-year funding. As a result, tens of millions of Americans are not expected to face disruptions to food assistance programs such as SNAP, unlike during the previous shutdown, when some recipients waited days or even weeks for benefits.

However, the shutdown could escalate into a more serious disruption if it drags on. Travelers may experience airport delays, hundreds of thousands of federal workers could see paychecks suspended, and some government-backed loans for homebuyers and small businesses may be temporarily halted.

The shutdown, which began on January 31, affects departments including Homeland Security, Defense, Education, Health and Human Services, Housing and Urban Development, Transportation, State, Labor and Treasury, agencies that together account for more than three-quarters of discretionary federal spending.

Although the Senate approved a bill funding all agencies except the Department of Homeland Security through September 30, DHS received only a two-week stopgap measure to allow negotiations over proposed changes to immigration enforcement and law enforcement oversight.

The standoff follows the killing of US citizens by immigration officers during protests in Minneapolis in January, sparking widespread outrage. Senate Democrats have pushed for reforms including limits on mobile patrols, stricter warrant requirements, tighter use-of-force rules, mandatory body cameras and a ban on officers wearing masks.

Despite the funding lapse, most DHS employees, including Border Patrol agents, immigration officers, airport security staff, Secret Service agents and FEMA personnel, will continue working as “essential employees,” though many will do so without pay until the shutdown ends.

Payments for Social Security beneficiaries and people with disabilities will continue uninterrupted. Unemployment benefits will also continue, provided states retain the administrative capacity to process claims. Medicare and Medicaid payments will proceed under existing contingency plans.

More than 400 national parks will remain open, along with Smithsonian museums and the National Zoo, all of which received full funding through the end of September.

Air traffic controllers and Transportation Security Administration officers will continue working but will not receive pay during the shutdown. The air traffic controllers’ union warned that suspended support programs and furloughed auxiliary staff could undermine aviation safety efficiency, raising the risk of flight delays and cancellations, a repeat of the chaos seen during previous shutdowns.

US Postal Service operations will not be affected, as the agency is self-funded through the sale of its services rather than congressional appropriations.

Federal employees face the heaviest burden. An estimated 45% of the civilian federal workforce will be affected, with more than 500,000 employees required to work without pay and roughly 480,000 others furloughed. While federal law guarantees back pay once the shutdown ends, government contractors receive no such protection.

Government shutdowns carry tangible economic costs, delaying public spending and suppressing consumer demand as unpaid workers cut back. A five-week shutdown in 2018–2019 permanently reduced economic growth by an estimated $3 billion and lowered tax revenues by roughly $2 billion due to disruptions at the Internal Revenue Service.

Most economic data releases, including the monthly jobs report, are also suspended during shutdowns, complicating efforts to assess the health of the economy in real time.

The US Travel Association warned that a shutdown could cost the travel industry $1 billion per week, driven by delays, cancellations and workforce strain.

“A government shutdown is a completely avoidable blow, and the consequences of inaction are immediate and severe,” said Geoff Freeman, the association’s chief executive.