US faces another shutdown risk. How will markets react?

On January 29 local time, the United States Senate failed to pass a government funding bill after it fell short of the 60-vote threshold required for approval.

The setback has pushed multiple federal departments, including the US Department of Homeland Security (DHS), toward a potential funding lapse as early as January 30, reviving the risk of a partial government shutdown. The immediate trigger of the impasse was two fatal shootings of US citizens involving federal law enforcement officers in Minnesota, which sparked strong Democratic opposition to DHS funding and exposed sharp partisan divisions over immigration enforcement reforms.

Notably, the latest shutdown risk comes just over two months after a record 43-day federal shutdown that lasted from October 1 to November 12, 2025, underscoring the persistence of political polarization in the country.

Based on assessments by Morgan Stanley and major US media outlets, if a shutdown materializes, it is more likely to take the form of a short-lived, partial fiscal disruption. From a macroeconomic perspective, its overall impact is expected to remain manageable, though localized pressure on specific industries, employment groups and market sentiment should not be overlooked.

Morgan Stanley notes that, historically, the direct drag from a government shutdown on GDP tends to be temporary and largely reversible. As a rule of thumb, "a full shutdown trims roughly one-tenth of a percentage point" from annualized quarterly growth for each week it lasts. Much of that impact is typically unwound once government operations resume and delayed spending is restored. As a result, a brief shutdown is unlikely to materially alter the fundamental paths of corporate earnings, inflation trends or the Federal Reserve's monetary policy outlook.

At the same time, analysis by Bloomberg and CNN highlights that even a partial shutdown can generate tangible operational frictions. These may include disruptions to air travel, delayed pay for some federal employees, interruptions to loan approvals, and suspensions of certain administrative services — creating short-term pressure for sectors and regions that depend heavily on government spending or public services.

Beyond these direct effects, a shutdown could also delay the release of key economic data, complicating real-time assessments of economic conditions. Such information gaps may weaken market visibility and amplify confidence-related volatility among consumers and businesses.

Overall, the prevailing view among US market analysts and major media outlets is — if the duration of a shutdown is contained, its economic cost would remain largely temporary and structural rather than systemic. Still, against a backdrop of elevated geopolitical tensions and already heightened policy uncertainty, the uncertainty-driven volatility associated with a government shutdown itself may emerge as a risk factor that markets will need to monitor closely.