The calm reaction of financial markets to the government shutdown could encourage President Donald Trump to press ahead with an agenda of cuts to federal employment and spending.
The White House has threatened and already implemented some so-called “reductions-in-force,” in which agencies would fire employees who aren’t deemed essential.
Trump ran on downsizing the federal government and cutting into the administrative state. Through the Department of Government Efficiency and other efforts, his administration has worked to reduce the federal workforce, and last week began threatening that a shutdown could be used as a mechanism for firing more workers.
NO JOBS REPORT EXPECTED FRIDAY AMID GOVERNMENT SHUTDOWN
Desmond Lachman, a senior fellow at the American Enterprise Institute, told the Washington Examiner that if the Trump administration starts laying off a lot of federal workers instead of furloughing them, it would present a drag on the economy.
But despite that, markets are taking the news in stride.
In fact, the three leading United States stock indices — the Dow Jones Industrial Average, the S&P 500, and the Nasdaq — closed at record highs on Thursday.
Trump has historically been highly attuned to the stock market as a barometer of his job. The strong performance gives him another reason to allow the shutdown to continue and the reduction in force to go through.
Peter Loge, director of the George Washington University School of Media and Public Affairs, pointed out that, in past shutdowns, markets shrugged because they knew that any slowdown in spending from furloughed workers would be made up after the shutdown ended. If workers are fired, though, it’s a different story.
“If people are laid off, that money won’t come back, and they won’t buy the stuff, and that will slow the economy,” Loge told the Washington Examiner.
Leading the charge for the Trump administration is Office of Management and Budget Director Russ Vought, a longtime proponent of downsizing the government, who, ahead of the shutdown, circulated a memo telling government agencies to prepare reduction-in-force plans in the event of a government shutdown.
The reduction in force seemed to have started as a threat to Democrats to accept a spending bill that would fund the government without any changes, but Democrats dug their heels in and are demanding reinstatement of expiring Obamacare subsidies.
But now that the threat from Republicans has started to materialize. On Wednesday, Vice President JD Vance and White House press secretary Karoline Leavitt suggested that the layoffs would be “imminent.”
Vought also spoke with House Republicans that same day and said a reduction in force would happen within the next one to two days, a source confirmed to the Washington Examiner.
And on Thursday, Trump himself ratcheted up the rhetoric, saying in a social media post invoking Project 2025 that he is planning to meet with Vought “to determine which of the many Democrat Agencies, most of which are a political SCAM, he recommends to be cut, and whether or not those cuts will be temporary or permanent.”
Project 2025 was a controversial roadmap released by the Heritage Foundation ahead of the 2024 election. It was designed to revamp the government and expand executive power to advance conservative principles. Democrats accused Trump of running on the agenda, but he disavowed it on the campaign trail.
“I can’t believe the Radical Left Democrats gave me this unprecedented opportunity,” Trump added. “They are not stupid people, so maybe this is their way of wanting to, quietly and quickly, MAKE AMERICA GREAT AGAIN!”
Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute, said that Democrats think they will be able to win the battle of public opinion, but might have bitten off more than they can chew.
“I think that the Democrats made a strategically bad call here to shut down the government, because it does give OMB more discretion to determine which federal government workers are essential and which are non-essential,” she told the Washington Examiner.
Some Republicans have expressed concerns with expectations of Vought’s aggressive strategy, and some, like Senate Majority Leader John Thune (R-SD), have used it to illustrate how Democrats have seemingly brought this problem, the targeting of government workers, on themselves by not voting to keep the government’s lights on.
“This is the risk of shutting down the government and handing the keys to Russ Vought,” Thune told Politico.
He also said that reining in Vought is not part of the Republicans’ congressional purview.
Some Republicans are leaning into the shutdown firings, such as Sen. Mike Lee (R-UT), who said on Fox News that the shutdown will empower Vought to pursue his aims, to the detriment of Democrats.
“Russ Vought, the OMB director, has been dreaming about this moment, preparing for this moment, since puberty,” Lee said. “Russ Vought has a plan, and that plan is going to succeed in further empowering Trump. This is going to be Democrats’ worst nightmare.”
Republicans have implored Democrats to relent, arguing that they are holding the government — and federal workers — hostage to gain political capital.
“How long will Democrats hold the American people hostage to play their political games? I hope they come to their senses soon,” said House Majority Whip Tom Emmer (R-MN). “Until then, we will force them to go on the record about their self-inflicted shutdown every single day, and the consequences will be theirs to own and only theirs.”
Democrats are decrying the administration’s moves to cut workers, but are still holding firm as of Thursday afternoon.
“Trump has said that if Democrats don’t fall in line and do whatever it is that Republicans want, he’s going to fire thousands of workers across the country,” Sen. Elizabeth Warren (D-MA) said. “He is using American workers as pawns. It’s deeply wrong.”
Democratic messaging is that Republicans are responsible for the shutdown as they control the White House, the Senate, and the House — despite the fact that Republicans have already voted to reopen the government and Democrats have refused to do so in order to exact political concessions.
“Democrats are fighting to protect your healthcare,” said House Minority Leader Hakeem Jeffries (D-NY). “Donald Trump and Republicans have shut down the government because they want to take your healthcare away.”
Boccia said that the only leverage Democrats have now is public opinion. New polling shows, at least for now, that they are outpacing Republicans in the messaging stakes.
SHUTDOWN WOULD HAVE FALLOUT FOR GOVERNMENT WORKERS, THE FED, AND MARKETS
A Washington Post poll released Thursday found that just 30% blame Democrats for the shutdown, while 47% believe Trump and Republicans are to blame.
“I guess it remains to be seen who will win this public opinion battle … neither side wants to blink until they know that they’ve lost the public opinion battle, and then this government shutdown will likely come to some kind of closure,” Boccia said.
