Our Opinion: 2025
The Good, the Bad, and the Unfunded
As of 1 October 2025, the federal government in Washington has entered a shutdown following Republicans and Democrats stand-off on Capitol Hill. Their failure to agree a way forward on the Government’s spending bill is a bit of classic Western high drama. While shutdowns are far from novel in U.S. politics, their recurrence—and the heightened polarization around fiscal policy—has already got many investors running for the hills (or at least the gold that lies therein).
The shutdown is a funding lapse, not a debt default: essential services such as Social Security, Medicare, and some defence services continue, but discretionary agencies and many federal employees are furloughed or working without immediate pay. Because of the Government Employee Fair Treatment Act (2019), impacted federal workers will receive back pay retrospectively once appropriations return but there is a key nuance this time – namely the threat—at least rhetorically—of permanent workforce reductions which would depart from past practice.
The immediate impact is modest but meaningful if the shutdown stretches. Analysts estimate a cut to GDP of 0.1 percentage point per week of shutdown. As federal workers delay spending and government contractors lose revenue, some local and regional ripple effects may materialize—notably in communities with high prevalence of federal employment or contracting.
Also worthy of note will be any suspension or delay of economic data (jobs, CPI, consumer, etc.) which muddies the policy backdrop for the Federal Reserve. Any prolonged ambiguity increases the risk of mispricing in interest rates, credit spreads, and equities.
Historically, investors have shrugged off short shutdowns. The average shutdown lasts around 8 days, and markets tend to recover or even rally following resolution. However, as any investment warning goes, past behaviour is no guarantee of future performance. Longer disruptions, political escalation, or conjunction with a debt ceiling crisis would elevate systemic risk.
What the shutdown does do however is reinforce the negative narrative around U.S. political dysfunction— and some rating agencies have already flagged the shutdown as a credit-negative factor.
If the shutdown ends in days, the damage is likely limited. However, if it stretches into weeks or aligns with broader fiscal standoffs (such as the debt ceiling), the downside risks grow. It is certainly worth keeping an eye on events like debt ceiling deadlines or congressional negotiations that could act as turning points.
In such uncertain data environments, markets may overreact to signals (earnings, guidance) rather than fundamental so hedging downside risk or holding flexible liquidity may be wise over the next 2–4 weeks. It is entirely likely that , just as the ultimate safe haven asset gold has grown in popularity recently, so investors may favour companies with strong balance sheets, low leverage, less dependence on government contracts or regulatory timing.
If certain names are oversold in anticipation of disruption (especially in regulatory- or contract-dependent sectors), a turnaround play might present itself once the shutdown resolves. Long-term investors might view this as a buying opportunity. The threats of permanent cuts or policy changes could have longer-term consequences for regulatory regimes, defence spending, and infrastructure financing. This will provoke key questions such as what happens if government capacity is diminished over time? How might this reshape private vs. public roles in infrastructure, housing?
The U.S. government shutdown is best understood as a political event with real but constrained economic implications—unless it escalates or coincides with more severe fiscal standoffs. For investors, the key is not to overreact to headline drama in the wild west, but to manage exposures, maintain optionality, and monitor how long the uncertainty persists.
1st October 2025
