U.S. federal government, prolonged shutdown… stocks soar

Prolonged shutdown expected… congressional deadlock continues

Trump pressures Democrats with threat of mass layoffs of government employees

Clash over Obamacare tax credits and Medicaid

Controversy over budget cuts to blue states and freezing of infrastructure funds

New York stock market at record highs…"Corporate confidence is greater"

The U.S. federal government's shutdown is expected to possibly last more than a week. With the U.S. Republican and Democratic parties deadlocked over cuts to tax credits for Obamacare, the Senate has not scheduled any sessions for the time being.

On the 2nd (local time), the Donald Trump administration and the ruling Republican Party appeared to be aggressively pushing the Democratic opposition rather than seeking a compromise over the shutdown. They are especially pressuring Democrats with the possibility of laying off government workers.

President Trump said on Truth Social, "I will meet with Russell Vought, director of the White House Office of Management and Budget (OMB), to hear recommendations on which of the many 'Democratic institutions,' mostly political scams, to cut and whether those cuts are temporary or permanent." This was interpreted as meaning a permanent large-scale layoff of federal employees. White House spokeswoman Karoline Leavitt also said in a broadcast interview that the number of federal employees to be laid off would "reach into the thousands."

The Democrats also do not seem to be backing down. The Democrats are calling for an extension of Obamacare (ACA) subsidies that expire at the end of the year. They also oppose cuts to Medicaid by the Trump administration. Medicaid is a joint federal-state healthcare program for low-income and vulnerable populations in the United States. The Republicans, on the other hand, argue against the Democrats' demands because they could provide medical benefits to undocumented immigrants.

Because of this, the U.S. Senate plans to put the short-term spending bill (continuing resolution; CR) to another vote on the 3rd to seek an end to the shutdown, but it is expected to be difficult. A short-term spending bill is a bill that temporarily extends and approves the budget to prevent a shutdown when Congress fails to pass a regular budget on time.

However, it is a burden that the Trump administration is carrying out budget cuts focused on 'blue states,' where Democrats hold an advantage. For example, on the first day of the shutdown, the U.S. Department of Energy canceled funding for about 300 projects across 16 states that Democratic candidate Kamala Harris won in the 2024 presidential election. The roughly $8 billion in cuts could lead to the loss of tens of thousands of jobs. On the same day, the Trump administration decided to freeze $18 billion in funding for two major infrastructure projects—the Hudson River rail tunnel and the Second Avenue subway construction in Manhattan.

Meanwhile, although the shutdown entered its second day, the New York stock market continued its strength and all three major indices closed at record highs. Investors are largely optimistic that the impact of the federal government's work stoppage on the U.S. economy will be limited, based on past shutdown experiences. Adam Turnquist, chief strategist at LPL Financial, told Fox Business in an interview, "A shutdown adds uncertainty to the market, but looking at past cases, investors have tended to largely ignore the issue," and explained, "What investors ultimately pay attention to are corporate earnings and the overall direction of the economy; short-term political shocks have limited impact compared with long-term trends."

New York = Park Shin-young, correspondent nyusos@hankyung.com