US Economy Braces for Downturn as Federal Layoffs Begin
White House confirms permanent job cuts amid shutdown, sparking fears of a sharp drop in consumer spending and creating uncertainty for the Fed.
The U.S. economy is facing a significant new headwind as the White House confirmed Friday that , a dramatic escalation of the ongoing government shutdown. The move from temporary furloughs to permanent job cuts is stoking fears of a broader economic impact, threatening to curb consumer spending and destabilize an already fragile market.
The direct removal of federal salaries from the economy is expected to have a more severe and lasting impact than previous shutdowns. Economic analyses indicate that each week of a shutdown can trim up to 0.2 percentage points from quarterly GDP growth, with some estimates putting the weekly economic cost at over $7 billion. Unlike furloughed workers who typically receive backpay, laid-off employees face a permanent loss of income, which could significantly dampen consumer confidence and spending—the primary driver of the U.S. economy. The 2018-2019 shutdown, the , resulted in a permanent loss of an estimated $3 billion.
Compounding the issue is the shutdown's effect on critical government functions. The suspension of key economic data releases, including inflation and employment reports, is . This lack of visibility complicates monetary policy decisions at a crucial time, leaving investors and businesses in a state of uncertainty. As the political impasse in Washington continues, the mounting economic damage raises the stakes for both the market and the nation's fiscal health.