US Shutdown: Will 2025 Bring the Deepest Recession Yet?

America on Pause: What the US Shutdown Means for the Economy?

The American economy is flashing warning signs of a looming downturn, with key indicators pointing to a potential recession in 2025. As the US shutdown drags on, economists are sounding the alarm, asserting that economic fundamentals are deteriorating.

According to the Bipartisan Policy Center, over 1.4 million federal employees have missed at least one paycheck. With 22 states already experiencing economic contraction, the question on everyone's mind is: Will 2025 bring the deepest recession yet?

US Shutdown Continues: What Does This Mean for the American Economy?

The federal government closure started on October 1, 2025, after lawmakers were unable to reach an agreement on a budget to fund the government, which furloughed roughly 900,000 employees. The US shutdown is largely a result of partisan disagreements over the federal spending levels, foreign aid rescissions, and health insurance subsidies.

As the US shutdown now enters another month, uncertainty surrounds a wide range of federal programs, and there are significant economic costs that may be incurred as a result of the shutdown, possibly anywhere from $7 billion to $14 billion, says the Congressional Budget Office.

According to Moody's Analytics chief economist, 22 US states are experiencing economic contraction, leaving many lower- and middle-income households on shaky financial ground. The economy is beginning to show signs of a slowdown, as more individuals have difficulty fulfilling their car loans. Specifically, 6.5% of subprime borrowers (those with lower credit scores) are more than 60 days behind on their payments, and car repossessions are at a level we haven't seen since the financial crisis of 2008-2009.

Consequently, pawn shops are lending out more money, with two of the largest companies registering record highs. Additionally, reports from GoFundMe show an increase in people using crowdfunding platforms to pay for everyday expenses, clearly signaling that many Americans are struggling financially. Normally, government data would shed light on the overall health of the economy. However, the ongoing shutdown delays new data being made available, leaving the public to guess the state of the economy.

No More Rate Cuts, Hints Fed Chair

Adding more to the speculations of the 2025 economic recession, Fed Chair Jerome Powell hinted at the central bank’s tightened monetary policy approach. Although the bank reduced the rates by 25 basis points, Powell’s hawkish tone has sparked a bearish tone across the market. He noted,

“In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”

Banks Offer Financial Relief for Federal Employees

Banks and credit unions are stepping in to support government employees affected by the closure. USAA has provided over $384 million in relief to 127,000 military servicemembers and federal employees, including loans and payment extensions. Similarly, Navy Federal Credit Union's Paycheck Assistance Program is seeing high demand, offering zero-interest loans to customers impacted by paycheck disruptions. These relief efforts aim to alleviate financial strain on govt employees during the shutdown.