Federal Reserve Chair Jerome Powell said that the ongoing federal government shutdown, the second-longest in US history, is weighing on US economic activity, although he stressed that the effects should reverse once the shutdown ends.
“The shutdown of the federal government will weigh on economic activity while it persists,” Powell said during the news conference. “But these effects should reverse after the shutdown ends.”
Powell’s remarks came as the central bank announced its second rate cut of the year, lowering the benchmark federal funds rate to a range of 3.75‑4.00 percent, and revealed that it will halt the reduction of its balance sheet in December as part of a broader tightening of monetary policy.
Powell’s remarks followed a report from the Congressional Budget Office, which estimated that the month-long government shutdown would reduce gross domestic product by at least $7 billion by the end of 2026. CBO Director Phillip Swagel noted in a letter that the economic impact is expected to increase the longer the shutdown persists.
The US government shutdown, which began on October 1 and is now among the longest in history, has caused delays and suspensions of many key economic data releases. Major series, including the September non‑farm payrolls report, retail sales, and weekly jobless claims, have either been postponed or suspended altogether.
Although the unemployment rate remained low through August, job gains have cooled and downside risks to employment have risen, Powell noted. Meanwhile, inflation remains “somewhat elevated,” according to the Fed’s summary of recent economic conditions.
If the data blackout continues, limiting insight into the world’s largest economy, central bankers might delay further rate cuts until more reliable information becomes available.
“The shutdown of the federal government will weigh on economic activity while it persists,” Powell said during the news conference. “But these effects should reverse after the shutdown ends.”
Powell’s remarks came as the central bank announced its second rate cut of the year, lowering the benchmark federal funds rate to a range of 3.75‑4.00 percent, and revealed that it will halt the reduction of its balance sheet in December as part of a broader tightening of monetary policy.
Powell’s remarks followed a report from the Congressional Budget Office, which estimated that the month-long government shutdown would reduce gross domestic product by at least $7 billion by the end of 2026. CBO Director Phillip Swagel noted in a letter that the economic impact is expected to increase the longer the shutdown persists.
Shutdown complicates policy decisions
The US government shutdown, which began on October 1 and is now among the longest in history, has caused delays and suspensions of many key economic data releases. Major series, including the September non‑farm payrolls report, retail sales, and weekly jobless claims, have either been postponed or suspended altogether.
Although the unemployment rate remained low through August, job gains have cooled and downside risks to employment have risen, Powell noted. Meanwhile, inflation remains “somewhat elevated,” according to the Fed’s summary of recent economic conditions.
If the data blackout continues, limiting insight into the world’s largest economy, central bankers might delay further rate cuts until more reliable information becomes available.
