White House: Mass layoffs will start if shutdown talks 'going nowhere'

The ongoing U.S. government shutdown is escalating, with the Trump administration preparing for mass federal worker layoffs if negotiations with congressional Democrats remain stalled. Democrats are demanding a permanent extension of enhanced ACA premium tax credits and assurances against unilateral spending cuts, while Republicans prioritize reopening the government before addressing healthcare reform. With upcoming Senate votes unlikely to break the impasse, the threat of widespread layoffs signals a deepening of the shutdown's economic implications.

Analysis

WASHINGTON, Oct 5 (Reuters) - The Trump administration will start mass layoffs of federal workers if President Donald Trump decides negotiations with congressional Democrats to end a partial government shutdown are "absolutely going nowhere," a senior White House official said on Sunday. As the shutdown entered its fifth day, White House National Economic Council Director Kevin Hassett told CNN's "State of the Union" program he still saw a chance that Democrats would back down, averting a costly shutdown and federal employee layoffs that have been threatened by White House budget director Russell Vought. Read about innovative ideas and the people working on solutions to global crises with the Reuters Beacon newsletter. Sign up here. Advertisement · Scroll to continue "President Trump and Russ Vought are lining things up and getting ready to act if they have to, but hoping that they don't," Hassett said. Later on Sunday, Trump was asked by reporters when the administration would begin laying off federal workers. Trump responded, without elaborating: "It's taking place right now." The White House's Office of Management and Budget, which has played a key role in Trump's campaign to sharply scale back the size of the federal government, did not immediately respond to a request for comment. NO SIGN OF TALKS No tangible signs of negotiations have emerged between congressional leaders since Trump met with them last week. The shutdown began on October 1, the start of federal fiscal 2026, after Senate Democrats rejected a short-term funding measure that would keep federal agencies open through November 21. Advertisement · Scroll to continue "They've refused to talk with us," Senate Democratic leader Chuck Schumer told CBS' "Face the Nation" program, saying the impasse could be solved only by further talks between Trump and the four congressional leaders. Democrats are demanding a permanent extension of enhanced premium tax credits to help Americans purchase private health insurance through the Affordable Care Act and assurances that the White House will not try to unilaterally cancel spending agreed to in any deal. Senate Majority Leader John Thune has said he is willing to address Democrats' concerns but that they must first agree to reopen the federal government. Trump also expressed an interest in the healthcare question while emphasizing Republican interests in reforming the ACA, also known as Obamacare. "We want to fix it so it works. Obamacare has been a disaster for the people, so we want to have it fixed so it works," the president said. SENATE VOTE MONDAY Rank-and-file Senate Democrats and Republicans have held informal talks aimed at finding common ground on healthcare and other issues in hopes of reaching a deal to reopen the government. Asked if the lawmakers are any closer to a deal, Democratic Senator Ruben Gallego told CNN: "At this point, no." On Monday, the Senate is due to vote for a fifth time on the stopgap funding bill that has already passed the Republican-controlled House of Representatives and on a Democratic alternative. Neither measure is expected to receive the 60 votes needed to advance. With a 53-47-seat majority and one Republican opposed to the House funding bill, Republican leaders need at least eight Democrats to support the measure but have seen only three cross the aisle so far. "It's open up the government or else," John Thune told the Fox News program "Sunday Morning Futures." "That's really the choice that's in front of them right now," the South Dakota Republican said. Reporting by Andrea Shalal and Leah Douglas; additional reporting by Jasper Ward, Raphael Satter and David Morgan; writing by David Morgan; editing by Michelle Nichols, Chizu Nomiyama Nand Richard Chang Our Standards: The Thomson Reuters Trust Principles. The partial U.S. government shutdown, now in its fifth day, is escalating with the Trump administration signaling imminent mass layoffs of federal workers if negotiations with congressional Democrats remain at an impasse. A senior White House official confirmed that preparations are being made, and President Trump stated layoffs are currently taking place. The core of the dispute is Democrats' demand for a permanent extension of Affordable Care Act (ACA) premium tax credits and assurances against unilateral spending cancellations, which they require before approving a funding measure. Republican leadership insists the government must be reopened before these issues are addressed. With no tangible negotiations occurring and upcoming Senate votes on funding measures expected to fail to reach the required 60-vote threshold, the political gridlock is poised to deepen. This situation introduces significant macroeconomic risk, reflected in the strongly negative sentiment and high market impact score (0.65), as a prolonged shutdown coupled with federal layoffs could suppress consumer confidence and disrupt economic activity.

Key Decisions for Investors

• Given the escalating risk of a prolonged shutdown and federal layoffs, investors should consider a more defensive portfolio posture, potentially reducing exposure to U.S. consumer discretionary and government-dependent sectors.
• Closely monitor legislative developments and statements from congressional leaders, as any sign of a political compromise would likely serve as a catalyst for a significant relief rally in U.S. equities.
• Investors should anticipate delays in the release of key government economic data, which will increase uncertainty, and exercise caution in making major allocation shifts until the shutdown's economic impact becomes clearer.