10/6/25 REcap: The Government Shutdown Impact On Mortgage Rates

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How does a Government Shutdown affect mortgage rates?

The Federal Reserve Angle

Government shutdowns impact how and when we receive government data about inflation, employment, GDP and everything in between, and that spells disaster for a Federal Reserve trying to make real time decisions about the state of the economy and what tools need to be deployed to achieve their dual mandate (maximal employment and lower inflation). We received 1 piece of government labor data before the shutdown (job openings) but the BIG one (the jobs report) is delayed until the government is back up and running. Importantly inflation data (CPI and PPI) will also be delayed if the shutdown continues beyond the 16th, which as I noted above is certainly possible. While the Federal Reserve has become more hawkish, it's still a highly data dependent body. CME Group still has a 95.7% chance of a rate cut on 10/29, but if that or later cuts begin to be less likely as a result of the shutdown, rates will head higher.

The Economy Angle - Shutdowns are bad for the 10 Year Treasury which is bad for mortgage rates

When the government shuts down, it sounds like spending stops—but really, it just gets delayed. Every furloughed paycheck and paused contract still has to be paid once Washington reopens. That means a surge of new borrowing later, which pushes Treasury yields up.

Then there’s the confidence problem. Shutdowns remind global investors that U.S. politics can be messy. The US - like everyone else - has a credit rating and shutdowns can cause a credit rating downgrade (as we saw in 2011). When dysfunction takes center stage and a large credit bureau downgrades US debt, investors demand a higher risk premium for holding long-term debt. 

In short, a shutdown doesn’t calm markets—it rattles them. The 10-year rises because uncertainty costs money. Remember, the Fed Funds Rate influences the 10-year, but mortgage rates are based on the 10-year NOT the Fed Funds Rate.

The Labor Data We Did Get Last Week

Because of the shutdown, the Labor Department’s September jobs report never came out on Friday—so there’s no official unemployment rate this month. But some data did slip in before the lights went out. The JOLTS report showed 7.2 million job openings in August (on track with estimates but lower than the month before). With hiring continuing to slow and quits falling to an eight-month low, it's a clear sign of a cooling labor market.

Once the government shut down, all government reporting stopped. Thankfully, ADP, a private payroll processor, still reported, but the data was not great for the labor market. There was a 32,000 job loss in September, the weakest private hiring since early 2023.

The Chicago Fed’s model suggests unemployment likely stayed near 4.3%, but without the government’s report, that figure can’t be confirmed. Until Washington reopens, everyone—from the Fed to Wall Street—is working off estimates instead of facts.

What's Ahead This Week

No government reporting (US trade deficit, jobless claims, inventory data) is expected this week as the shutdown continues. Pretty much every Federal Reserve president and governor is speaking this week, so we should be getting plenty of insight on the Fed's thinking during this uncertain time. Hopefully rates stay steady through this storm, but expect a volatile ride until the government re-opens for business.

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