This Wednesday, the United States entered a 35-day partial federal government shutdown, surpassing the historic longest period set during President Donald Trump’s administration.
This situation has left the country with limited government functions, prevented the publication of important economic data, and directly affected the Federal Reserve’s monetary policy decisions and the review process for digital asset exchange traded funds (ETFs).
The Labor Department reports that official economic information will not be released until the government shutdown ends. In the worst case scenario, a “statistical power outage” that could last more than 60 days.
This includes suspending the monthly employment report, unemployment rate, Consumer Price Index (CPI) and Producer Price Index (PPI), retail sales, and home construction statistics.
The shutdown, which began on October 1 due to a lack of budget agreement in the US Congress, has put the Fed in a particularly delicate position. The possibility of rate cuts must be evaluated “in the dark.” There is usually no macroeconomic data to guide decisions.
As for CME Group’s derivatives market, even amidst the uncertainty, there is a 68% chance that the Fed will continue to cut rates when it meets again on December 10th. The FedWatch tool sees interest rates likely to fall to 3.5% annually. However, there is also a 31.9% chance that it will remain in the current range (3.75-4.0%).
Closures affecting markets and monetary policy
Bitcoin analyst Andre Chalegre pointed out in an interview with CriptoNoticias that historically US government shutdowns have not had a lasting negative impact on risk assets.
«While this may seem negative for risk assets, typically after such trades (shutdown) We see that the S&P 500 and other risk assets, including Bitcoin, perform well, i.e., positive returns, tend to increase, even after and during the shutdown,” he explains.
But Chalegre warns that the current situation is different. Due to labor market fragility and dependence on the FED Analyze that data to justify new measures.
“The impact of the shutdown is closely tied to the realization of rate cuts and lack of information,” he added. “The Fed doesn’t have all the market data, so it’s left without direction.”
Labor statistics have shown signs of weakness in recent months. This marks the FED’s second consecutive interest rate cut. Despite the lack of complete information.
“That panicked the market and there was no chance they wouldn’t cut rates in the first rate cut two months ago,” the analyst said, noting that Federal Reserve President Jerome Powell relied on private data and alternative sources “despite the government shutdown.”
The Fed has no compass and the market is “in dark water”
There are only 35 days left until the next Federal Open Market Committee (FOMC) meeting. The outlook remains uncertain.
“We are now entering dark waters because this is the longest shutdown in history (…) We need to end this shutdown because the government and the commission need more data to reach an agreement on whether there will be a rate cut,” Challegre warned.
The analyst also highlighted that the U.S. financial system is showing signs of stress due to a lack of liquidity, which has led banks to rely heavily on buyback operations, known as .repository«.
“In fact, liquidity injections this high have not been seen in the past five years, totaling $72.3 billion in just two days,” he stressed. In fact, CriptoNoticias reported: US Fed injects $125 billion into economy through these repository In just one week.
These operations involve banks exchanging bonds and other securities for cash as a kind of indirect support for the financial system. “Markets are interpreting this as an indication that it is imminent that the Fed will begin asset purchases by the end of 2025, even at higher interest rates, which means changes could occur even before year-end,” he said.
Bitcoin and ETFs await clarification
In parallel, the prolonged government shutdown is also impacting the evaluation process for crypto ETFs filed with the Securities and Exchange Commission (SEC).
As reported by CriptoNoticias, human resource shortages and administrative paralysis have delayed the approval of several financial products related to cryptocurrencies, limiting the development of an institutional market centered on digital assets.
Despite the uncertainty, Challegre believes it could be a favorable environment for Bitcoin. If the Fed confirms a shift to more expansionary policy.
“This is an ideal scenario for us. It’s best for the shutdown to end as soon as possible. Historically, shutdowns have had a positive effect, but we need to arrive at the next meeting with clearer data so we can make more accurate decisions about any future actions, including whether the Fed will cut interest rates.”
With the system paralyzed for more than a month and no clear sign of agreement in Congress, the United States faces an unprecedented information blackout. The lack of official data makes it impossible to assess the true state of the economy, complicating monetary policy decisions. Meanwhile, financial markets oscillate between caution and expectation.
History suggests that risk assets may find fertile ground once normalcy returns. But, as Charlegre warned, “we are now in uncharted territory.”
(Tag translation) Bitcoin (BTC)
