October 3, 2025 | Michael R. Strain

The writer is director of economic policy studies at the American Enterprise Institute

There is a simple way out of the US shutdown impasse. House Republicans, supported by President Donald Trump, have passed a bill to fund the government at current levels through November 21. Eight Senate Democrats could join with their GOP colleagues and pass this bill, keeping the government open.

They haven’t done so. In order to focus the nation’s attention on unrelated healthcare policies, they would rather shut the government down than keep 750,000 government workers on the job, airport security lines running smoothly and disease-outbreak response at full capacity. Senate Democrats own this shutdown.

All of this is happening at a time when the Federal Reserve seems to be fundamentally misreading the economy, making the disruptions to the release of government data that will result from the shutdown even more harmful.

The September labour market report — which should have been released on October 3 — likely would have shown that the unemployment rate remained low and relatively stable, and that wage growth remained solid. This additional evidence of labour market strength at a time of accelerating, above-target underlying inflation could have helped the Fed understand that now is the wrong time for a cutting cycle.

Moreover, the shutdown could disrupt the quality and timeliness of the October jobs report. Even worse, the Fed may not have access to September consumer price index data at its next rate-setting meeting, which begins October 28. It could take government statisticians a couple of weeks after returning to work to compile the data, as was the case after the 2013 shutdown. Amid policy upheaval and uncertainty, now is a terrible time for the central bank, investors and businesses to be flying blind.

Democrats are primarily concerned about the fate of enhanced subsidies for Affordable Care Act health insurance plans, which will expire at the end of 2025. President Joe Biden signed these subsidies into law and their expiration would increase out-of-pocket healthcare expenses for more than 20mn people, in many cases substantially. Millions could ultimately become uninsured if the subsidies aren’t extended.

The fundamental issue here is lack of trust. Democrats don’t believe they will be able to get a deal with Trump to extend these subsidies without real leverage. Their mistake is in thinking that the shutdown gives them such leverage.

The reason they don’t have leverage is that Trump’s position is shockingly reasonable: he wants to keep the government funded at Biden-era levels, with no strings attached. Moreover, previous efforts to use a shutdown as leverage to enact unrelated policies have ended in failure and embarrassment.

Yes, early polling shows that voters blame Trump more than the Democrats. But many respondents are undecided, and what matters is how this is playing locally, not nationally.

By shutting down the government, Senate Democrats are handing Trump a lot of power, further reducing their leverage. It gives him the opportunity to implement spending cuts. Trump’s budget director has already announced holds on $18bn of federal funds for New York City infrastructure projects and $8bn of climate-related projects. In addition, the White House has said that it might attempt to lay off thousands of federal workers if the shutdown continues, advancing another of the president’s goals. Both Trump and GOP Senate Leader John Thune have shown willingness to negotiate with Democrats to extend the ACA subsidies, which many voters receive in several places that will be closely contested in next year’s midterm elections, and in some red states. In fact, two Republican senators have already expressed a desire to extend the subsidies.

Democrats stand a good chance of meeting their goal — but only after they reopen the government. It’s more likely than not that the subsidies are extended in some form, in time for the start of the ACA enrolment period on November 1.

For all these reasons — the need for timely economic statistics, the Democrats’ lack of leverage, and the likelihood of Democrats eventually succeeding in extending the expiring ACA subsidies — this shutdown is likely to be short lived. Indeed, three members of the Senate Democratic caucus have already voted for the House funding bill. Trump only needs five more to break ranks. I’d be surprised if it lasts beyond October 15, around when the next pay cheque for US military service members is due. Because of this probable brevity, the economic impact of the shutdown seems likely to be minimal. As for markets, US equity indices closed at record highs on Thursday, and the bond market registered no signs of concern.

After reopening the government, moderate Democrats might console themselves by arguing that this stunt increased public pressure to extend the healthcare subsidies due to expire at year’s end. That might be right.

But this episode is yet another reason for investors and foreign leaders to be increasingly concerned about the stability of the US government and yet another crack in the dam of US global economic and geopolitical leadership. That dam will hold in spite of the shutdown. But it will be further weakened — and the flood it could one day unleash is powerful and frightening.