By lydia depillis the economic effect of past government shutdowns has been straightforward. A prolonged government shutdown could push the economy over the edge if the shutdown drags on, the psychological effects may lead to a larger loss of confidence among consumers and businesses. For reference, the economy grew by an average annualized rate of 1.8% over the first half of 2025, meaning it would take several weeks of a government shutdown for notable damage to be incurred.
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The longer the government shutdown continues, the deeper and more extensive its economic scars are likely to be
While some effects may be temporary and reversible once government operations fully resume, others could have more lasting impacts on economic growth, stability, and confidence.
Shutdowns of the federal government usually don’t leave much economic damage But the one that started wednesday looks riskier, not least because president donald trump is threatening to use the standoff to permanently eliminate thousands of government jobs. A government shutdown leads to pauses and delays in the collection of economic data This has implications for the federal reserve, as they would need to make their next interest rate decision.
