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Dow Jones NewsSep 30, 4:42 PM UTC
MW A government shutdown at midnight looks likely. What it means for Social Security and unemployment checks, the IRS, markets and more.
By Victor Reklaitis
Prediction markets are putting the chance of a partial shutdown of the federal government at around 80%
The lack of a breakthrough at a much-anticipated White House meeting with congressional leaders "all but guarantees" that a partial government shutdown will take effect overnight, analysts say.
The country appears to be headed for a partial government shutdown for the first time in about seven years, after a White House meeting with the top four congressional leaders ended with acrimony rather than agreement.
Prediction markets Kalshi and Polymarket were both putting the chance of a shutdown at around 80% as of midday Tuesday. Senate Minority Leader Chuck Schumer, a New York Democrat, told reporters shortly after Monday's White House meeting that there still were "very large differences," while Vice President J.D. Vance said the government is "headed to a shutdown because the Democrats won't do the right thing."
The shutdown - which is set to begin at midnight Eastern time - is inching ever closer to happening because Democrats and Republicans are locked in a standoff over including an extension for Obamacare subsidies in funding legislation.
"The lack of a breakthrough yesterday all but guarantees that a shutdown will take effect tonight, although the Senate will first take one last vote to avert a shutdown later this afternoon," analysts at Beacon Policy Advisors said in a note.
Here is a rundown of what to expect if the U.S. federal government mostly closes down overnight.
What it means for markets
History shows that traders usually take U.S. government shutdowns in stride.
There have been 20 federal government shutdowns since 1976, lasting an average of eight days, Monica Guerra, head of U.S. policy at Morgan Stanley Wealth Management, said in a note. Bond-price volatility tends to increase during shutdowns, while the S&P 500 SPX has risen 4.4% on average, in an indication that other macroeconomic factors play a larger role in market outcomes, Guerra wrote.
"In sum, we would remind investors that shutdowns are common, and once resolved, agency operating budgets and employees are made whole, blunting any broader market and economic impacts," she said, adding that shutdowns usually have a minimal impact on economic growth.
Read more: How stocks and the 10-year Treasury performed during government shutdowns since 1980
How does D.C. get out of this mess?
Schumer reportedly has been planning for multiple scenarios once a shutdown sets in, including by offering a short-term continuing resolution to Senate Majority Leader John Thune and other Republican lawmakers in order to allow for additional negotiations on the Affordable Care Act subsidies, the Beacon analysts noted.
"Given GOP lawmakers' leverage in negotiations, they have little to no incentive to accept a Democratic alternative such as the one-week CR," the analysts said. "Instead, the path of least resistance to exit a shutdown is for Democrats to accept Thune's promise to negotiate on ACA subsidies later this fall in exchange for the votes to reopen the government. Democrats may seek more specific commitments from Thune in such a deal, but any such specifics will be determined by the White House's yet to be determined position on the ACA subsidies, not Thune's."
Don't miss: A government shutdown would hurt home-buying deals just as buyers are coming off the sidelines
No impact on the IRS for five business days
The Internal Revenue Service plans to remain fully staffed and fully operational for five business days after the shutdown starts.
The tax-collecting agency would be dipping into extra funding that was first allocated during the Biden administration, according to its contingency plan. That means the IRS would be able to continue its normal functions, including the processing of income-tax returns for 2024 filed on extension. It would also include ongoing phone assistance and audits.
Though tax season is months away, early October matters. Taxpayers who received an extension have until Oct. 15 to submit their return before facing penalties and interest.
The contingency plan only discusses a five-day window that appears to run through Oct. 7. It doesn't cover what would happen next.
What keeps going: Social Security, essential services
The U.S. military and other federal government services and employees deemed essential continue to operate during a shutdown.
That typically includes air-traffic control, law enforcement, border protection, in-hospital medical care, power-grid maintenance and some legislative and judicial staff, according to a nonpartisan watchdog group, the Committee for a Responsible Federal Budget.
People enrolled in Social Security, Medicaid and Medicare also keep getting their checks and other benefits. However, the CRFB notes that benefit verification and card issuance are expected to stop until the shutdown ends.
Other programs that continue are those funded by user fees. The U.S. Postal Service, which is self-funded, is expected to operate as usual. Unemployment benefits are typically administered by U.S. states, so a federal government shutdown isn't expected to halt those payments.
Possible layoffs for federal workers
This shutdown appears on track to be different from past ones in that the Trump White House's Office of Management and Budget has indicated agencies could pursue mass layoffs for programs that lack funding.
"Democratic leadership has repeatedly brushed aside OMB's threat, noting that the administration has been downsizing the federal government regardless of the status of government funding, although that position could become less tenable if agencies follow through with OMB's request," the Beacon analysts said.
In past shutdowns, federal government employees who weren't classified as essential would be expected to get furloughed, not laid off. Those workers weren't paid during the shutdown but received back pay once agencies reopened.
It's worth noting that there can be problems when essential employees are told to show up for work while not getting paychecks. During the record-setting shutdown that began in mid-December 2018, American travelers faced longer security lines as some Transportation Security Administration agents didn't report to work, and shortages of air-traffic controllers temporarily stopped travel at New York's LaGuardia Airport and caused delays at other major airports.
Read more: How badly could mass layoffs during a government shutdown hurt the stock market?
Potential hits to IPOs, jobs report, SNAP benefits
When shutdowns have loomed in the past, there have been expectations that furloughs at the Securities and Exchange Commission would freeze initial public offerings.
A shutdown this week also would prevent the Friday release of a monthly jobs report. The report on nonfarm payrolls is key for investors and for the Federal Reserve as the central bank decides whether or not to cut interest rates again. A contingency plan from the Department of Labor, which releases the jobs report, says economic data will not go out as scheduled in the event of a shutdown.
National parks would most likely be closed, according to guidance issued during a prior shutdown threat. There have been instances, such as during the 2018-19 shutdown, when the National Park Service kept sites open with visitor services suspended, but many places ended up with damage and big piles of trash.
The Environmental Protection Agency halted inspections during a past shutdown, and the Food and Drug Administration delayed inspections, the CRFB notes.
In addition, the ability to send out Supplemental Nutrition Assistance Program benefits could be affected by a shutdown, since continuing resolutions typically have only authorized SNAP benefits, also called food stamps, for 30 days after a shutdown starts.
Vivien Lou Chen, Andrew Keshner and Robert Schroeder contributed.
-Victor Reklaitis
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09-30-25 1242ET
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