Shutdown fallout: Delays, data gaps, and what brokers should expect

In its latest meeting on September 16 – 17, the Federal Reserve voted to reduce the federal funds rate by 25 basis points. This decision marks a strategic pivot as the Fed responds to signs of slowing economic momentum and rising risks in the labor market.

Why the Fed took action
Most Federal Open Market Committee (FOMC) members believe further easing may be appropriate. Slowing GDP growth and a softening labor market have increased downside risks to employment, prompting the committee to act cautiously. At the same time, the Fed emphasized a balanced approach, keeping inflation squarely in focus while responding to emerging economic challenges.

Looking ahead
The next FOMC meeting is scheduled for October 28 – 29 and will take place even if the government remains shut down. However, officials may face limited access to some key government data typically used to guide policy decisions, which could require them to rely more heavily on alternative data sources to make informed choices.

One of the few economic reports released in the wake of the government shutdown, the ADP National Employment Report, showed private payrolls declined by 32,000 in September. That’s a sharp miss against economists’ expectations of a gain and marks the biggest drop since March 2023.

The industry with the largest reduction was leisure and hospitality, down 19,000, while education and health services added 33,000. View the full report here.

The U.S. government officially shut down on October 1 after lawmakers failed to reach a budget agreement. The deadlock between congressional Republicans and Democrats centers on spending priorities, including disputes over extending Affordable Care Act premium tax credits and proposed cuts to Medicaid.

What the shutdown means right now

As negotiations continue, thousands of federal employees are facing furloughs, and nonessential services have been paused. Americans may soon feel the ripple effects through airport delays, national park closures, and longer passport processing times.

This shutdown could prove more disruptive than past ones, with the potential for permanent layoffs and significant delays in economic data releases that policymakers and investors rely on.

What the shutdown means right now

As negotiations continue, thousands of federal employees are facing furloughs, and nonessential services have been paused. Americans may soon feel the ripple effects through airport delays, national park closures, and longer passport processing times.

This shutdown could prove more disruptive than past ones, with the potential for permanent layoffs and significant delays in economic data releases that policymakers and investors rely on.

Economic ripples and market reactions

The shutdown is injecting fresh uncertainty into the economy. With agencies like the Bureau of Labor Statistics unable to collect or publish data on inflation or employment, investors are flying blind ahead of the Federal Reserve’s late-October policy meeting.

In the short term, mortgage rates may dip, as they are most heavily influenced by yields on 10-year Treasury notes, which are in high demand in times of political uncertainty. However, the long-term impact is murky.

Housing market complications

The shutdown also directly impacts government-backed loan processes. While government-sponsored entities like Fannie Mae and Freddie Mac continue normal operations, there may be delays in issuing government-funded mortgages, such as FHA, USDA, and VA loans, or in getting required documentation, like IRS tax transcripts.

Another significant disruption for home buyers is a lapse in authorization for the National Flood Insurance Program (NFIP), which is mandatory in many areas. The suspension can delay thousands of home transactions each day.

Despite the headlines, many households remain unfazed. According to a Redfin survey, only about 24% of Americans are delaying or canceling major purchase plans due to the shutdown. For the most part, many people simply don’t feel the shutdown affects them.