MW Why markets are missing risks of a Trump government shutdown

By Chris Matthews

The 'DOGE' blitz on the federal bureaucracy could complicate negotiations

As Washington hurtles toward another government-shutdown deadline on March 14, markets are responding with their usual mild anxiety. But this time may be different - and the real risk isn't about which agencies close or how long federal workers go without paychecks.

The unprecedented factor in this shutdown threat is how it could be leveraged by Tesla $(TSLA)$ CEO Elon Musk's so-called Department of Government Efficiency, or "DOGE," to cement control over the federal government's payment systems, potentially allowing an unelected team to decide which obligations the U.S. government pays - and doesn't pay.

"Money is just being pilfered. They're stealing funds that are supposed to go to American families and businesses," Rep. Rosa DeLauro of Connecticut, House Democrats' chief budget negotiator, reportedly told the Washington Post on Monday. "If we're going to go through the agreement and get the topline and hammer it all out and someone comes along and upends it, that's what we want to try to avoid."

Republicans control the House, Senate and White House but would need seven Democratic votes in the Senate to overcome a filibuster and pass government funding legislation.

House Speaker Mike Johnson, a Louisiana Republican, said he is committed to passing a continuing resolution to fund the government at current levels "while we begin to incorporate all these savings that we're finding through the DOGE effort and these other sources of revenue" on NBC's "Meet the Press" on Sunday.

President Donald Trump said in a Feb. 27 post on his Truth Social platform that he wants a temporary funding bill through September.

It's not so much how the actual shuttering of the federal government will impact markets that investors should be worried about but what that would signal about the ability for Democrats and Republicans to compromise, Michael Arone, chief investment strategist at State Street Advisors, told MarketWatch.

"This one is a litmus test on whether Democrats and Republicans will be able to work together to get things done," he said. "I do think the heat has been turned up a notch this time around, and I think the market is sensing that, and it's certainly been a bit more volatile."

The DOGE factor

What has Democrats and some legal experts concerned isn't just the funding battle but what they describe as a constitutional crisis playing out in real time through DOGE's activities.

"What appears to be the unchecked authority of an unelected individual and an entity that was not created by Congress and over which it has no oversight" is how federal judge Tanya S. Chutkan characterized DOGE, and Musk, at a recent hearing.

Democrats and legal observers have criticized DOGE's efforts to shut down the U.S. Agency for International Development, or USAID, without congressional approval, laying off or firing thousands of federal workers outside of traditional civil-service procedures and gaining access to sensitive financial information and critical payments systems with the Treasury Department.

DOGE's takeover of the Treasury payment system has experts worried that, in the event of a government shutdown, the Trump administration could simply leverage its control of these payment systems to make sure favored programs remain funded while disfavored ones do not.

"There's some fear that the Trump administration will try to go it alone and essentially try to [operate the federal government] primarily through executive order and the judicial system," State Street's Arone said. "And that just suggests greater uncertainty for investors. It's just such a departure from the historical norms of how previous administrations have [governed], and markets are unsettled by that."

Shutdown impact

If Congress fails to reach a funding agreement by March 14, Americans could face a repeat of the 2018-19 shutdown - the longest in U.S. history, at 35 days - when Trump futilely demanded funding for a border wall.

During that shutdown, approximately 800,000 federal workers were either furloughed or required to work without pay. National parks closed or operated with minimal staff, leading to damage and safety concerns. The FDA halted routine food safety inspections, air travel was disrupted as TSA agents called in sick, and economic growth took a $11 billion hit according to the Congressional Budget Office.

From the archives (February 2019): National parks were severely damaged during the government shutdown

Also see (January 2019): 'We'll never see that money back' - how small-business owners can recover from the shutdown

William Resh, an expert on government shutdowns at the University of Southern California, told MarketWatch that prolonged disruption would create significant political pressure from unexpected places.

"I think you'll expect to see Congress and members of Congress, particularly if the shutdown is prolonged as a function of President Trump's obstinacy - I think you're going to see a ton of internal rumblings within the majority about getting the government back up and running," Resh said.

He noted that the impact would be felt far beyond Washington, saying "85% of the federal workforce is working outside of Washington, D.C., and the reason they're working outside of Washington is these regional offices are dealing with regional issues, and that's the connecting point of federal government outlays to these states."

The political consequences could be significant, particularly in areas that supported Trump. "You're going to see all these federal programs in these rural districts, red districts, that are going to have significant impacts if they're ending due to a shutdown. Those voters are going to be complaining to the representatives, 'What the hell is going on?' " Resh said.

How sensitive the Trump administration is to the complaints of constituents, at least in parts of the country that supported him, could be a key factor in understanding the shutdown's ultimate impact.

Bob Elliott, the co-founder of ETF provider Unlimited Funds and a former Bridgewater Associates executive, told MarketWatch that a shutdown of two or three months is "certainly possible," and, while the direct economic affects of that would be "notable," the length of the shutdown will be a signal for market participants as to the Trump administration's basic governing abilities.

Investors will be staring down market-unfriendly policies like higher tariffs and a restrictive immigration stance, only to be faced with the prospect of fundamental budgetary dysfunction, he added.

"If a protracted shutdown portends an inability to come to an agreement on the debt ceiling, or a deal on tax cuts," Elliott said, "the market will react negatively."

-Chris Matthews

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March 04, 2025 09:49 ET (14:49 GMT)

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