Following a 41-day standoff, the US government shutdown, which began on October 1st, has reached its end. Even though the shutdown has now ended, financial markets and investors took a step back during the period. As markets recalibrate, the question on everyone’s mind is how long the effects will linger.
Bitcoin and crypto felt the liquidity squeeze
Even though the crypto market is seen as separate from government implications, Bitcoin and altcoins are often linked more closely to tech stocks. As such, they are not immune to the liquidity shifts triggered by macroeconomic events.
During periods of uncertainty, Bitcoin showed mixed signals. During the 2013 shutdown, Bitcoin gained 10%; however, it also fell by 10% in 2018 during a similar event. Now, Bitcoin’s price fell past the $100,000 level for the first time in months. While it’s not a direct effect of government uncertainty, the crypto market mirrored broader market anxiety. Even so, the correlation between Bitcoin and dollar liquidity remains high at around 0.85.
What is more, the shutdown triggered regulatory delays, which have hampered investor confidence in following through on their investments. As core government branches like the SEC operate as normal, analysts see Bitcoin potentially reclaiming $100,000 range in Q4 of 2025. However, as we highlighted in a recent analysis, Bitcoin and the crypto market could see further corrections despite improved economic conditions.
A data blackout obscures the economic picture
A consequence of the government shutdown was the disruption of key economic data. For the first time since 1948, the “household survey,” used to calculate the unemployment rate, was not conducted in October, and economists emphasized that payrolls had actually declined rather than increased in October.
What’s more, inflation data was not released in October, which is a key indicator for investors and policymakers. This means they were projecting and investing blindly, as the October Consumer Price Index (CPI) report was never released. Additionally, analysts emphasize a lack of data collection, which could distort November and December inflation data.
Finally, Morgan Stanley highlights that October data on inflation and consumer spending will not be available for the FED’s policy meeting. This means that future rate cuts, which have been discussed, could be implemented but reversed in 2026. Thus, the data blackout created challenges, as without reliable metrics, it’s difficult to gauge the true health of the economy.
Stocks rally on shutdown resolution
The resolution to the government blackout saw both European and US stocks move. The European Stoxx 600 saw an increase of 0.1% on Thursday. Additionally, the S&P 500 rose by 1.5% while the Nasdaq Composite jumped 2.3%. The positive reactions signaled relief among investors who had been bracing for a more prolonged period of economic uncertainty.
Investors in Europe emphasize that they expected budget uncertainty to start impacting spending in October and November. Yet some companies reported positive earnings in European markets, with others, like Siemens, expected to report earnings soon.
With the government shutdown ending, investor confidence has rapidly shifted from waning to more positive, clearly indicating how political deadlocks had weighed on overall market sentiment.
Inflation and the Fed’s next move
The absence of reliable economic data places the Federal Reserve in a difficult position as it prepares for its final policy meeting of the year on December 9-10. Fed Chair Jerome Powell has consistently emphasized a data-driven approach to monetary policy and has recently noted that the labor market is a key factor in the Fed’s decisions.
With crucial reports on employment and inflation either delayed or flawed, the Fed is navigating what Powell himself described as “driving in the fog.” In response, he emphasized that decisions might slow down, potentially hinting at a delay in any projected rate cut.
Making such an important decision without a clear view of the economic landscape would be risky. The growing expectation for rate cuts in early 2026, driven by the shutdown’s negative impact on short-term growth, may now be tempered by the central bank’s need for reliable data. Until the statistical fog lifts, the Fed is likely to adopt a cautious, wait-and-see approach.
A cautious path forward
The end of the government shutdown has allowed markets to see the light at the end of the tunnel, and recent price movements show collective relief. While market reactions and investor outlooks have been positive, the shutdown has left a lasting mark, disrupting economic data and preventing the Fed from receiving stable, reliable information.This data fog complicates the Federal Reserve’s ability to make informed policy decisions, potentially delaying rate cuts and introducing a new layer of uncertainty for investors.
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