The federal government is barreling toward a potential shutdown just as economic warning signs begin to flash more brightly, with slowing job growth, persistent inflation, and a looming recession threat putting pressure on both policymakers and markets.

With the deadline just hours away, top congressional leaders met with President Donald Trump at the White House Monday afternoon in a last-ditch effort to avert the shutdown. But as bipartisan gridlock continues, a funding lapse now appears almost certain unless a last-minute breakthrough is achieved.

Federal Reserve Chair Jerome Powell last week called the current climate a “challenging situation” for monetary policy, noting that the Fed is navigating through a “turbulent period” with limited visibility. A government shutdown, which would temporarily sideline tens of thousands of federal workers and freeze key economic data releases, could add a fresh layer of uncertainty.

“In stable times, this is not a particularly big deal,” said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget. “But it’s probably a little bit of a bigger deal now.”

Historically, the economic effects of shutdowns are modest and short-lived, stemming mainly from furloughed federal workers who temporarily stop receiving pay and reduce their spending. But analysts warn that this time could be different.

According to Mark Zandi, chief economist at Moody’s Analytics, each week of shutdown could shave 0.1% off quarterly GDP growth, a notable impact given that the economy expanded at a 1.8% annualized pace in the first half of 2025.

Complicating matters, the halt in government operations would also delay the release of critical economic indicators, such as inflation, employment, and GDP figures — depriving the Federal Reserve and investors of data needed to make informed decisions.

If no agreement is reached by Tuesday night, hundreds of thousands of federal employees will be furloughed, while government contractors could face delayed payments or lost business. During the last major shutdown in 2018, nearly 800,000 federal workers were furloughed or worked without pay. This time, the number may be lower due to recent workforce reductions, but the impact would still be significant.

Adding to concerns, the Trump administration has floated the possibility of firing some furloughed workers during a shutdown. That would not only raise the human cost but also eliminate the economic bounce-back typically seen when furloughed employees receive retroactive pay after shutdowns.

Critical services such as national defense, law enforcement, and entitlement programs like Social Security and Medicare would continue operating. However, public trust in the government’s ability to function could take another hit.

Shutdowns tend to erode consumer confidence — a key driver of economic activity. According to the University of Michigan’s consumer sentiment index, sentiment dropped more than 7 points during the 2018-2019 shutdown, the longest in U.S. history at 35 days.

“Even if the shutdown is short, it sends a damaging signal at a time when the economy is already fragile,” said Gerald Epstein, economics professor at the University of Massachusetts, Amherst. “If it’s a long shutdown, it almost certainly will be quite negative.”

Since 1977, the federal government has missed funding deadlines 20 times, with shutdowns averaging 8 days, according to the Bank of America Institute. But political polarization has made recent shutdowns more prolonged and contentious.

With both Republicans and Democrats digging in, and no clear path to a compromise, the nation appears poised for yet another fiscal showdown — this time with higher economic stakes and deeper political risks.