The prospect of a federal government shutdown loomed over markets Tuesday, as stock markets were subdued and the dollar weakened, after Vice President JD Vance said Democrats and Republicans remain at a stalemate over funding federal operations.
The vice president warned of a likely shutdown after talks with Trump and congressional leaders failed to break a deadlock
Win McNamee/Getty Images
The prospect of a federal government shutdown loomed over markets Tuesday, as stock markets were subdued and the dollar weakened, after Vice President JD Vance said Democrats and Republicans remain at a stalemate over funding federal operations.
“I think we’re headed to a shutdown because the Democrats won’t do the right thing,” Vance told reporters after talks between congressional leaders and President Donald Trump at the White House.
The Dow Jones slipped 0.2% and the S&P500 fell 0.1% in early trading as hopes faded that a shutdown would be avoided by the midnight deadline. The dollar was down against the euro, sterling and the Japanese yen Tuesday morning. Gold rose to a fresh high in the early hours, hitting $3,871 before retreating slightly. The safe-haven metal has soared about 45% this year.
"The looming government shutdown creates a haze of uncertainty over the market, which has served to accelerate gold's gains," said KCM Trade analyst Tim Waterer, per Reuters.
The deadlock in Washington comes after Republicans have been prodding Democrats to accept a clean, short-term spending patch that keeps the government funded through Nov. 21. Democrats, though, are balking at supplying their votes without an extension of Affordable Care Act insurance subsidies that expire at the end of the year.
Both sides blamed the other after the Monday meeting. Democratic House Minority Leader Hakeem Jeffries and Senate Minority Leader Chuck Schumer, said the two sides remained far from striking a deal.
“We have very large differences,” Schumer said Monday, but he added that he believed Trump heard Democrats’ objections “for the first time.” He added: “It’s up to the Republicans whether they want a shutdown or not.”
“They wouldn’t back off on any of these crazy demands,” said Republican House Speaker Mike Johnson late Monday, meanwhile.
As the U.S. hurtles towards the deadline, the stalemate could paralyze U.S. government operations for the first time since 2018-2019, when funding for the government lapsed for five weeks, including over New Year’s Day, during Trump’s first term. It would cause the suspension of some public services and paychecks for federal workers.
It raises the risk of a fog setting in over U.S. economic conditions in the short-term, as tariffs crimp employment growth and corporate investment. The September jobs report scheduled to be published on Oct. 3 will be postponed in the event of a government shutdown, the Department of Labor said in an announcement outlining its latest shutdown plan. The same applies for the monthly inflation data set for Oct. 15 release if Congress hasn't clinched a funding agreement by then.
“It’s even possible that the Fed might not have contemporaneous data going into their next meeting,” starting on Oct. 28, Deutsche Bank analyst Jim Reid said, per the Wall Street Journal.
The Trump administration has also threatened mass firings of federal staff, while airlines have warned that a shutdown could slow flights, as air traffic controllers and security officers would need to work without pay.
—Joseph Zeballos-Roig contributed to this article.
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