The US government has shut down for the first time in six years after Congress failed to reach a consensus on the budget.
The US legislature regularly agrees on a new budget at the last minute, usually even passing temporary budgets before doing so. But on Tuesday night, the Republicans' latest attempt failed. Despite their slim majority in the Senate, they need 60 out of 100 votes to pass a budget, which means they also need support from Democrats. It was not received, and the proposals of the Democratic senators were never adopted.
What does this mean?
If a budget or at least a sample one is not adopted, the US government and state administration will be left without funds, explains ARD. Therefore, a spending freeze is required and the continuation of the work of many state structures is questioned. Institutions whose activities are not considered essential will have to close their doors for an indefinite period of time and put their employees on unpaid leave.
A number of state employees will not receive a salary until a budget is adopted. The unpaid amounts will then be paid to them retroactively. However, many of them have no savings and live from month to month. Retroactive payment of amounts owed is not guaranteed at all for freelance workers who only have temporary contracts with the government.
Employees in essential government structures such as the military, emergency services, border police and air traffic control will continue to work, but will not receive pay during the government shutdown. Members of Congress, as well as the US president, continue to receive their salaries.
Why did the negotiations fail?
The adoption of a budget usually causes fierce political disputes in the US. This time, health care was at the center of the discussions. Democratic representatives are demanding that some of the cut funding for the Medicaid program, which provides health coverage to low-income people, be restored. The funding changes were passed with the "big beautiful law" Trump, so Republicans are unlikely to give up on them anytime soon.
Representatives of the Republican Party are trying to shift the focus of the debate to immigration policy and claim that Democrats want to redirect public money for health insurance for illegal immigrants in the country. Several American fact-checking organizations note that there is no evidence of such a thing. Representatives of the Democratic Party themselves categorically deny such plans and claim that not a single dollar will go to illegal immigrants.
How long will the blockade last?
It is unclear how long the blockade of the US government will last. The longest shutdown of its work in US history was during Trump's first term - in late 2018 and early 2019, the government was put in this mode for over five weeks.
The Senate wants to vote again today. The House of Representatives, however, was not scheduled to meet at all this week. However, given the circumstances, one may be convened. The budget proposal must be approved by both houses of Congress in order to be submitted to the president for signature.
The head of the Presidential Budget Office, Russell Vote, threatened even before the blockage occurred that layoffs would follow if there was one. This is in line with the approach of the Trump administration in the first months of its term, when many government employees were dismissed. Vote is considered a key figure in the Trump administration.
What will happen next for Americans and financial markets?
For Americans, the government shutdown could lead to delays in a variety of state activities, such as document processing. National parks will most likely also close. Tourists may also feel the impact of the blockage - flight delays and even cancellations are possible. Estimates suggest that all of this could cost about a billion dollars a week.
This situation could also lead to problems for financial markets. Berenberg economist Atakan Bakiskan recently suggested that the White House will classify the agency responsible for labor market statistics as non-essential, which would force it to cease operations. Then, employment and consumer price data may not be published on time, which would affect the decisions of the Federal Reserve. It reviews the key interest rate based on the data and decides on a possible further interest rate cut.