Hassett says layoffs will come if Trump thinks shutdown negotiations 'are going nowhere'

White House economic adviser Kevin Hassett warned that federal worker layoffs will materialize if government shutdown negotiations remain stalled, framing this as a tactic to pressure Democrats and their constituencies. Both Senate Majority Leader John Thune and Minority Leader Chuck Schumer expressed little confidence in an immediate resolution, with each side blaming the other for the impasse and lack of negotiation. This political gridlock, marked by mutual accusations from House leaders, signals prolonged uncertainty and the potential for escalating economic disruption from the shutdown's consequences, including direct impacts from federal layoffs.

Analysis

Hassett says layoffs will come if Trump thinks shutdown negotiations 'are going nowhere' The president's top economic adviser put the onus on Democrats. As the White House threatens mass layoffs of federal workers during the five-day-old government shutdown, White House economic adviser Kevin Hassett said Sunday that threat will materialize if President Donald Trump decides government shutdown negotiations are stalled. "If the president decides that the negotiations are absolutely going nowhere, that there, you know, there will start to be layoffs,” Hassett said when asked on CNN’s "State of the Union” when layoffs would occur. "But I think that everybody is still hopeful that when we get a fresh start at the beginning of the week, that we can get the Democrats to see that it's just common sense to avoid layoffs like that," he added. Asked what constitutes a "Democratic agency" that Trump has threatened to cut, Hassett said it was a negotiating tactic to show Democrats who are refusing to vote to fund the government what impact a shutdown would have in their area. He added a Democratic agency would be "shorthand for the agencies that generally are the favorites of the Democrats." "Senate Democrats are marching in unison towards like destruction, like letting us off a hill, off a cliff. And so I think that in the end, that it's natural to put more pressure on the states where the senators are being intransigent, so the senators themselves see the costs that they're imposing on the American people. I think that's completely logical,” he said. Meanwhile, neither of the top leaders in the Senate expressed much confidence that a vote to fund the government would pass anytime soon. Senate Majority Leader John Thune said on Fox News’ "Sunday Morning Futures” that "there’s not a lot to negotiate,” saying the shutdown will last "as long as the Democrats want it to go on. Right now, we're at a stalemate.” "It's just as long as the Democrats want it to go on. I mean, they're the ones -- they have the controlling card right now,” Thune said when asked how long he thought the shutdown would last. Minority Leader Chuck Schumer said the two sides are stalled because Republicans refuse to negotiate. "In every case, we sat down and talked with the Republicans, and there was a give and take. And then both sides didn't get everything they wanted, but we got it done,” Schumer said on CBS’ "Face the Nation” of his experience when he was Senate majority leader. "They have refused to talk to us even once … we've tried to talk to them for months and months and months and they said, ‘No.’” The top House leaders appeared on NBC's "Meet the Press” on Sunday and continued to criticize each other’s handling of negotiations, focusing more on behavior than the policy sticking points. House Minority Leader Hakeem Jeffries called Republicans behavior during the shutdown "unhinged.” "Well, that behavior is outrageous, it's unhinged, it's unreasonable, and it speaks for itself. The American people deserve better than lies, than attacks, than deep fake videos and the president spending all of his time on the golf course. We need serious leadership.” Jeffries again pushed back on false claims from Republicans that Democrats were attempting to give Medicaid to migrants without legal status. "Well, unfortunately, Republicans are lying because they're losing in the court of public opinion as it relates to what's going on right now. We are standing up for the health care of hardworking American taxpayers, of working class Americans, of middle class Americans and everyday Americans," Jeffries said. "Now, federal law clearly prohibits the expenditure of taxpayer dollars to provide health care to undocumented immigrants, period, full stop, and no Democrat on Capitol Hill is trying to change that law." Speaker of the House Mike Johnson appeared immediately after Jeffries on "Meet the Press” and argued that Democrats were trying to focus on health care because it was a distraction from the real issue. "Literally, everything my friend just said there was unnecessary, because what he's trying to talk about is a December funding issue, the health care provision, some of these Obamacare subsidies that expire December 31,” Johnson said. "He is looking over entirely the fact that we have to keep the government open in order to have those bipartisan debates and discussions that he just referenced.” Schumer argued he didn’t believe Republicans were taking the shutdown seriously, highlighting Trump’s memes throughout the week and Johnson’s decision to send the House home next week. "You actually need Johnson,” Schumer said. "If you're going to negotiate any agreement, you need Johnson, Thune, Trump, Schumer and Jeffries, and the reason he sent them home is because he's more interested in protecting the Epstein files than protecting the American people from the health care crisis,” Schumer argued. Asked about his decision to not call the House back in the session and whether it had to do with a pending vote on releasing the Jeffrey Epstein files, Johnson continued to point the finger at Democrats. "The reason the government is closed is because Chuck Schumer and 43 of his Democrat colleagues in the Senate have decided now to vote multiple times to keep the government closed. We need them to turn the lights back on so that everyone can do their work. The House did our work. We passed a bipartisan, clean continuing resolution to keep the government open,” Johnson said. Hassett continued to put the onus on Democrats if they want to avoid threatened layoffs. "What we want is we want the Democrats to come forward and to make a deal that's a clean continuing resolution that gives us seven more weeks to talk about these things. But the bottom line is that with Republicans in control, Republicans have a lot more power over the outcome than the Democrats. And the Democrats need to show some leadership,” Hassett warned. The U.S. government shutdown is defined by escalating political rhetoric and a significant risk of economic disruption, with no clear path to resolution. White House economic adviser Kevin Hassett has explicitly stated that layoffs of federal workers will occur if President Trump deems negotiations to be at a standstill, framing this as a direct pressure tactic on Democrats. This threat introduces a tangible economic risk beyond temporary furloughs. The political divide is stark, with both Senate Majority Leader John Thune and Minority Leader Chuck Schumer publicly acknowledging a stalemate, each blaming the opposing party for the failure to negotiate. This deep-seated partisan gridlock, underscored by a strongly negative sentiment score of -0.75, suggests the shutdown could be prolonged, increasing uncertainty for markets. The situation represents a materialization of fiscal policy risk, where political intransigence directly threatens government operations and, by extension, economic stability and confidence.

Key Decisions for Investors

• Investors should brace for increased market volatility and consider a more defensive portfolio posture, as a prolonged shutdown and the threat of federal layoffs could negatively impact Q1 economic growth and overall market sentiment.
• It is prudent to review exposure to sectors heavily reliant on government spending, such as defense and federal contractors, which face immediate risks from payment delays and operational disruptions.
• Monitor consumer discretionary stocks with caution, as uncertainty over the shutdown's duration and the direct impact of potential layoffs on household incomes could dampen consumer confidence and spending.