Core Insights - The potential government shutdown poses a significant risk to the timely release of key economic data, particularly the jobs report, which could impact Federal Reserve decisions on interest rates [2][10]. Economic Impact of a Shutdown - A full government shutdown could result in approximately 800,000 federal employees being furloughed, similar to the 2013 shutdown [5]. - Deutsche Bank estimates that each week of shutdown could reduce quarterly GDP by 0.2% [6]. - The economic damage from a shutdown is typically short-lived, but there are concerns that this time could be different due to potential deeper cuts in the federal workforce [7][8]. Historical Context of S&P 500 During Shutdowns - Historically, the S&P 500 has shown negligible lasting impacts during government shutdowns, with an average return of 0% since 1976 [9]. - During the longest shutdown from late 2018 to early 2019, the S&P 500 actually increased by 10%, driven by a dovish shift from the Federal Reserve [9]. Federal Reserve Considerations - The Federal Reserve's ability to make informed decisions on interest rate cuts may be hindered by the lack of payroll and inflation data during a shutdown [10]. - Markets are currently pricing in a 89% probability of a Fed rate cut on October 29 [10]. Legislative Developments - House Republicans have proposed a seven-week funding extension, but it has not passed the Senate [12]. - Senate Democrats have attempted to push an alternative funding plan that includes significant healthcare spending, but it has also faced challenges [12][13].