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Weekly Update 10/3/2025: Government Shutdown Commences

Insights
  • Fed Governor Cook gets reprieve from Supreme Court
  • Pfizer gets a boost
  • Adobe brings premiere video to iPhone  

The Shutdown At 12:01 am on Wednesday, funding for federal agencies lapsed after Congress failed to pass a stopgap bill. While not every office and agency is affected, it is enough to cause consternation and anger among employees and an uncertain path for the users of many services provided by the federal government. While a 2019 law guarantees automatic back pay once the shutdown concludes, private contractors who work with federal agencies and are furloughed are not guaranteed back pay. Several key economic releases are impacted including data from the Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS) and Census Bureau. Thus, the release of the Employment Situation Report, which includes the monthly unemployment report, and the consumer price index, which involves workers going to stores to check the validity of data received, will be postponed. While there is no optimal time for such an event to occur, now is particularly troublesome because the Fed is depending upon getting timely data before their next scheduled monetary policy committee meeting at the end of the month. The partial government shutdown in 2018 and 2019 that lasted 34 days reduced annualized real gross domestic product growth by 0.4 percentage points in the first quarter of 2019, the Congressional Budget Office estimated. The 2013 shutdown, which lasted 16 days and was a full shutdown, lowered annualized growth by as much as 0.6 percentage points, the Office of Management and Budget reported. Hopefully, things will be resolved by then, but in the meantime, markets will have to play a waiting game.

Before the shutdown, we did get some data from the BLS from their Job Openings and Labor Turnover Survey (JOLTS). Available positions rose to 7.23 million in August from a revised 7.21 million figure in July. The hiring rate edged down to 3.2%, the lowest level since June 2024 while layoffs were little changed. The number of vacancies per unemployed worker held at 1.0. At its peak, that ratio was 2 to 1 back in 2022. Importantly, the number of people who voluntarily left their jobs fell to the lowest level this year. This reflects the apprehension employees have about finding new positions should they freely walk out the door looking for greener pastures. This is creating a “low hire, low fire” labor market environment where employers are neither desperate to fill positions nor are they eager to pare ranks. This situation is broad-based across states and industries, but particularly sharp in construction, leisure & hospitality, retail trade and professional services, according to a Goldman Sachs study. The unemployment rate among workers ages 16 to 24 was 10.5% in August, the highest since 2016 excluding the Covid era (March 2020-June 2021).

A private sector report from ADP showed that the U.S. lost 32,000 jobs in September based on data released this week, a decline from August’s revised loss of 3,000. ADP’s report does not include government workers, and it has a history of diverging widely from the Labor Department’s numbers, which is based on a broader survey of employers. A 2022 revision in ADP’s methodology has led it to become a more useful measure, and, in recent months, the report has uncovered weakness in private sector payrolls before it showed up in revised, “official” figures from the BLS. For now, this is the best investors are going to get. Getting updated data will be key to determining if there will be further weakness in hiring and if tariff pressures are causing inflated consumer prices.  

The Fed

One of the more important news items of the week had nothing to do with the government shutdown, but its magnitude is massive. The Supreme Court this week refused to let the Trump administration remove Federal Reserve Governor Lisa Cook while she litigates to keep her job. The order means that Cook can remain in her position on the powerful Federal Open Market Committee (FOMC) at least until the justices rule after hearing oral arguments scheduled for January. No justice noted a dissent from the order.

Timing is everything. The next three scheduled meetings of the FOMC are October 28-29, December 9-10 and January 27-28. While most investors will be focused on the outcome of the vote on monetary policy, we will also be carefully watching the timing of the Board as it relates to the reappointing of Reserve Bank presidents. There are 15 Fed districts in total, and four Reserve Bank presidents rotate serving on the FOMC. These members, the seven members of the Board of Governors and the Federal Reserve Bank of New York President (which does not rotate out) comprise the 12 voting members of the FOMC. Given the size of the committee and the fact that four members rotate annually, it creates a system whereby viewpoints from the around the country get a vote on a regular basis. While the Board of Governors itself can total a majority, it is unlikely that more than a handful of members are appointed by the same U.S. president given the 14-year term.

From www.federalreserve.gov: Under the Federal Reserve Act all Reserve Bank presidents serve five-year terms that expire at the end of February in years ending with the numerals 1 or 6. Presidents who take office in intervening years are initially appointed for the remainder of their current term. Before the expiration of a president's current term, the Class B and C directors of each Reserve Bank (directors who are not affiliated with a supervised entity) vote on whether to reappoint the president to a new term… Reappointments are subject to approval by the Board of Governors, which reviews the Reserve Bank directors' assessment of their president's performance and any additional perspectives from members of the Board of Governors.  

The “simplest” way for a U.S. president to gain control over decisions is to appoint a majority of the Board. Then, use that leverage to prevent Reserve Bank members from being elected or re-elected if their policy does not mesh with the president’s viewpoint. This is why a Supreme Court hearing in January and a Reserve Bank ending term in February 2026 is so crucial. The fastest ruling in Supreme Court history was United States v. Nixon in 1974. The Court accepted the case on May 31, held oral arguments on July 8 and issued its unanimous decision on July 24. Given the fact that that was a case of great public importance (the value of every single piece of currency is affected by interest rates) as is this one, the Court could rule with expediency before Reserve Bank presidents are affirmed in February. The fact that the Court this week unanimously said it was ok to wait until January suggests that they might be reluctant to be party to a titanic shift in the makeup of that supposedly independent body. Stay tuned.  

Company Events

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