MW Government shutdown odds rise. Here's what it means for markets and your wallet.

By Chris Matthews

Americans may face tax-refund delays and long waits at the airport

The odds that the federal government will shut down Saturday morning have risen in recent days as a growing number of Senate Democrats have said they can't go along with a Republican plan that funds government programs through September.

"We need to move to a bipartisan approach," said Democratic Sen. Mark Warner of Virginia in a social-media post Thursday morning.

Warner's decision may serve as a bellwether for the broader Democratic conference, as he is known as a moderate, bipartisan dealmaker in the Senate.

"Senate Democrats are under pressure from their party's base to fight back against President Trump and Republicans," analysts at Beacon Policy Advisors wrote in a Thursday note to clients.

Beacon said that Senate Democrats will ultimately back down and accept the Republican plan, because "shutting down the government isn't in Democrats' DNA," and that it will be difficult to make the argument that they are opposing the funding bill at the same time as "they criticize Elon Musk and the DOGE's efforts to cut down the size of the federal government."

Betting markets, however, reflect a growing belief that the standoff will last past the deadline of midnight Friday.

The odds of a government shutdown jumped from 33% Wednesday morning to 51% Thursday, according to Polymarket. Betting platform Kalshi on Thursday afternoon showed 53% odds of a government shutdown.

What gets shut down?

During a government shutdown, services are divided into "essential" and "non-essential" categories. Here's how it generally breaks down:

Essential services to be continued during a shutdown are those considered necessary to protect life, property or national security. Their employees may be required to work without immediate pay. These include:

-- Military operations: Active-duty military personnel will continue working.

-- Law enforcement and public safety: FBI, Border Patrol, Secret Service, U.S. Marshals and federal prison staff will continue to work.

-- Air-traffic control and TSA: Air traffic controllers and TSA agents are supposed to continue working, though many workers refuse to come to work without pay, leading to long lines and flight delays and cancellations.

-- Social Security, Medicare and Medicaid payments: Benefits will continue, though administrative support may be delayed.

-- U.S. Postal Service: The USPS will operate as usual since it is self-funded.

-- Veterans Affairs (VA) hospitals and services: VA medical facilities would remain open.

-- Federal courts: These would continue operating for a limited period based on court fees, but funding may run out if the shutdown is prolonged.

-- Power grid maintenance and nuclear-safety operations: The Energy Department will maintain these critical functions.

Nonessential services are halted and employees are typically furloughed without pay until the government reopens. These include:

-- National parks and museums: National parks, monuments and Smithsonian museums will close.

-- IRS processing and customer service: Refunds and audits may be delayed.

-- Small business loans and grants: The SBA will stop processing loans.

-- The Securities and Exchange Commission will stop processing new IPO requests. Other regulatory functions, like FDA inspections, will also be delayed.

-- Federal research paused: Some scientific research and grant approvals at places like the National Institutes of Health will likely be delayed.

-- Some loan-processing functions at the Federal Housing Administration (FHA) will cease.

Market reaction

Markets typically look past government shutdowns as they historically have had few long-term economic impacts and are resolved in a matter of days or weeks. But some market observers foresee a different result this time.

Michael Arone, chief investment strategist at State Street Advisors, told MarketWatch last week that given the economic uncertainty around the president's tariff and tax plans, a shutdown would signal a level of dysfunction in Washington unseen in most investors' lifetimes.

Tesla Inc. $(TSLA)$ Chief Executive Elon Musk's effort to remake the federal bureaucracy, including a takeover of the Treasury Department's payment systems, has also created fears that a shutdown could be used to allow him and his so-called Department of Government Efficiency to make sure favored programs remain funded while disfavored ones do not.

"There's some fear that the Trump administration will try to go it alone and essentially try to [operate the federal government] primarily through executive order and the judicial system," State Street's Arone said. "And that just suggests greater uncertainty for investors. It's just such a departure from the historical norms of how previous administrations have [governed], and markets are unsettled by that."

-Chris Matthews

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 13, 2025 14:33 ET (18:33 GMT)

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