Government Grinds to a Halt: 5 Ways the Shutdown Affects Your Wallet
Written by
Travis Woods
Edited by
Cory Dudak
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For the first time since 2018, the U.S. federal government has shut down. After Congress failed to agree upon specific funding extensions and provisions along party lines, the American government shut down on Oct. 1 due to lack of funding.
Essentially, Democrats are adamant any federal funding bill include an extension of enhanced Affordable Care Act premium subsidies, something the Republican Party has thus far refused to do. Until one side or the other blinks (or at the very least agrees to a compromise), the federal government will likely remain closed.
The federal government has not reached such a funding impasse for seven years; during that time in President Donald Trump’s first term, the government shut down for 34 days — the longest government shutdown ever. The length of this shutdown remains to be seen, yet there will likely be a discernable impact regardless.
“When we hear ‘government shutdown,’ it can feel like political noise out of Washington,” Michelle Taylor, financial advisor at GFG Solutions and founder of the Women and Wealth Initiative, told GOBankingRates. “But the truth is, the impact can show up right in our wallets.
Federal Workers Are Not Being Paid
Most non-essential federal workers are being furloughed during the shutdown (while those involved in military and executive agencies essential to the protection of people and property will remain at work). This means federal employees will not be paid during the shutdown; rather, they will receive their unpaid back wages once government funding begins again. Obviously, the immediate impact of this is that the federal workforce has no income.
Additionally, as Taylor noted, while federal back pay will come later, “bills don’t wait. That ripple spreads quickly — less spending in local shops and restaurants, delays in services like passports, small business loans, or tax refunds, and even stress around credit card and rent payments.”
Broad Economic Impact the Longer It Goes On
That “ripple” Taylor described can become larger as the shutdown goes on. “Shutdowns also shake confidence in the broader economy,” she told GOBankingRates. “Markets can get volatile, borrowing costs can tick upward and some of the country’s lost productivity never comes back. For the average American, that means everything from slower job growth to more expensive mortgages or auto loans if these disruptions drag on.”
She added that government shutdowns “chip away at trust in the system, which has a longer-term effect on both businesses and households.”
Home-Buying Difficulties
As Kit Yona, legal writer for Find Law, explained to GOBankingRates, home purchasing in America could become more complicated the longer the shutdown stretches on. “Mortgages are funded through Fannie Mae and Freddie Mac,” Yona noted. “An extended shutdown can cause serious difficulties with getting a mortgage. The situation is even more dire for home transactions that require federal flood insurance. With the shutdown, no new flood insurance policies are available, which means that a buyer won’t be able to get a mortgage.”
Interest Rate Changes
A more complicated element of the shutdown is one that pertains to interest rates. As laid out to GOBankingRates by Dr. Selma Hepp, chief economist for Cotality, this lack of federal funding can even destabilize American interest and mortgage rates “by shaping investor sentiment and limiting access to key economic data.” She continued, “When shutdowns occur, investors typically flock to Treasury securities, which pushes their yields down and can result in slightly lower mortgage rates — usually a drop of about 0.125 to 0.25 percentage points. For instance, if the 30-year fixed mortgage rate is sitting at 6.375%, it might fall to around 6.125% during the shutdown.”
Destabilization of Overall Economic Policy
As Dr. Hepp noted, limited access to economic data during this period can have a critical impact on your finances. She further explained that a major issue with the interruption of federal economic reportage, such as those concerning employment and inflation, is that “the Federal Reserve relies on them when setting monetary policy. If these reports are delayed, the Fed may hold off on adjusting rates simply because they’re flying blind, even if the broader economy calls for action. While shutdowns can stir up short-term volatility in interest rates, long-term shifts are almost always driven by bigger-picture economic forces.”
While a federal government shutdown may at first seem like just more of the same partisan political rancor that defines American news of late, such an event can have serious economic consequences the longer it drags on — up to and including slowing down the U.S. economy and housing market during a period that was already marked by heavy economic uncertainty.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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