"The U.S. government is likely to shut down on October 1 and last for a long time"? This means that the October "non-farm payroll, CPI, and other data will be delayed," and the Federal Reserve can only "follow the September plan."

The U.S. government shutdown crisis has resurfaced, potentially dragging the market into a "vacuum period" of key economic data.

Recent developments indicate that the risk of a government shutdown is rising due to increasing deadlock between the two parties over spending issues. According to Wind Trading Desk, Nomura Securities pointed out in a research report released on September 22 that the Senate failed to pass a continuing resolution aimed at keeping the government operational last Friday. Republicans tend to favor a "clean" bill with fewer changes, while Democrats hope to use this opportunity to reverse policies such as cuts to healthcare subsidies. The hardline positions of both sides have dimmed the prospects for compromise.

This potential shutdown will directly impact the release of economic data. The report predicts that once the government shuts down, most federal statistical agencies, including the Bureau of Labor Statistics (BLS), will suspend operations. This means that a series of crucial data, including the monthly employment report, CPI, PPI, and retail sales, originally scheduled for release in October, will not be published on time.

For the market and the Federal Reserve, this is akin to an information blackout. The lack of the latest inflation and employment data will significantly increase the difficulty for the Federal Reserve to assess the economic situation. This will greatly reduce the likelihood of deviating from the established path in the September Economic Projections Summary (SEP) at its meeting on October 29.

Political Deadlock Difficult to Resolve, High Risk of Shutdown

The current fiscal year funding for the U.S. federal government will officially run out on September 30, and without congressional action, a government shutdown will begin on October 1. The core of this deadlock lies in the irreconcilable political differences between the two parties.

Nomura Securities' report analyzes that although Republicans hold a slim majority in the Senate, passing the appropriations bill requires the support of at least seven Democratic senators. However, both sides' positions are becoming increasingly hardline. Republicans prefer to push for a "clean" continuing resolution with minimal significant changes to keep the government running.

Meanwhile, Democrats view this necessary bipartisan agreement as an opportunity to reverse previous cuts to subsidies in the Medicaid and Affordable Care Act and seek to ensure that spending approved by Congress will not be canceled by the White House in the future.

It is worth noting that, unlike previous government shutdowns, the debt ceiling is not currently a focal issue. Therefore, this potential shutdown does not carry the risk of a technical default by the U.S. government.

Economic Data "Vacuum Period" May Arrive, Key Reports Will Be Delayed

Once the government shuts down, the most direct impact on the market will be the arrival of an "economic data vacuum." The U.S. Department of Labor (DOL), responsible for releasing core data such as employment and inflation, and its subsidiary, the Bureau of Labor Statistics (BLS), are likely to close on October 1.

According to the emergency plan developed by the Office of Management and Budget (OMB) in March 2025 to respond to a potential shutdown, employees of the Bureau of Labor Statistics are not classified as "essential personnel." Therefore, Nomura Securities expects that the OMB will not make exceptions during this shutdown, meaning that the release of the following key data will be affected:

October 4: Employment Report

October 15: Consumer Price Index (CPI) Report

October 16: Producer Price Index (PPI) Report

October 16: Retail Sales Report

October 30: Preliminary GDP for the Third Quarter

However, not all data will be interrupted. The industrial production report compiled and released by the Federal Reserve, as well as data from private institutions (such as the ADP Employment Report and ISM Purchasing Managers Index), will not be affected. Historically, the weekly initial jobless claims released by the Department of Labor may also continue to be published.

If the Federal Reserve "flies blind" on interest rates, it may stick to the September guidance

If the government shutdown is prolonged, the Federal Reserve will receive almost no top-tier official data between the two interest rate decision meetings on September 17 and October 29. This "flying blind" state will make it more likely for the Federal Reserve to adhere to the economic forecast summary (SEP) and the policy guidance provided by the dot plot released in September.

Nomura Securities believes that even if data releases proceed normally, the threshold for the Federal Reserve to deviate from its own predictions (such as maintaining interest rates or significantly cutting rates by 50 basis points) is already very high. The "data drought" caused by the government shutdown will further deprive the Federal Reserve of reasons to deviate from its established course. The report expects the Federal Reserve to cut rates by 25 basis points in October and December.

Although some Federal Reserve officials, such as Governor Christopher Waller, have emphasized the importance of private data in recent years and view it as a supplement to official data, the report points out that the FOMC is unlikely to consider private data as a substitute for official data.

Lessons from history: Data recovery takes time after a government shutdown

Historically, the duration of U.S. government shutdowns has varied greatly, ranging from a few days to over a month. For example, a shutdown in 1995 lasted 21 days, one in 2013 lasted 16 days, while the shutdown from late 2018 to early 2019 lasted as long as 35 days.

More importantly, even after the government reopens, statistical agencies need a considerable amount of time to catch up on backlogged work and restore normal release schedules. Taking the shutdown from October 1 to 16, 2013, as an example, the delays in data releases continued until December 6 of that year, which was the 51st day after the shutdown ended. Not only were the employment and CPI reports for October delayed, but even the November reports were not spared.

In the long term, the impact of a government shutdown on the real economy is expected to be limited. The Congressional Budget Office (CBO) assessed the shutdown events of 2018-2019 and found that while GDP growth was dragged down in the short term, most of the lost growth was ultimately made up as government employees received back pay and economic activity "caught up."

However, the shutdown may create "noise" in unemployment rate data, as temporarily laid-off federal employees may be categorized differently in various surveys (the Current Employment Statistics (CES) survey vs. the Current Population Survey (CPS)). For the financial market, data delays will trigger unusual volatility patterns. According to a report by Nomura, the implied volatility premium for the originally scheduled release date may decrease due to the high likelihood that data will not be released on time. Conversely, once a new release date is confirmed, volatility may significantly increase on those dates. Based on experiences from 2013, employment reports were released on the 4th business day after the government reopened, which may provide some reference for the market to predict the rescheduling of future data