How the government shutdown will affect federal workers

Summary

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Podcast Summary: Marketplace Morning Report

Episode: How the government shutdown will affect federal workers
Date: October 1, 2025
Host: Sabri Benishore (in for David Brancaccio)
Notable Guest: Susan M. Collins, President & CEO, Federal Reserve Bank of Boston; Nancy Marshall Genser, Marketplace reporter

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Episode Overview

This episode dives deep into the immediate impact of the U.S. federal government shutdown on federal workers and contractors. It also explores how the shutdown, along with tariffs and labor market shifts, is complicating the Federal Reserve’s job of balancing inflation and employment. The episode features rapid-fire reporting and analysis, focusing on both personal and macroeconomic consequences.

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Key Discussion Points & Insights

1. Immediate Effects of the Government Shutdown

• Federal Workers Furloughed: About 750,000 federal employees could be furloughed during the shutdown, per the Congressional Budget Office.

  • Essential staff (e.g., air traffic controllers, baggage screeners) must continue working—without pay—for now.
  • Federal employees typically receive back pay once the government reopens.
  • Federal contractors do not have guaranteed back pay, facing financial uncertainty.
    • Stephanie Senecastro: President of the Professional Services Council, comments on contractors struggling to work due to unavailable government contacts.

      “At least one big impact, though, is that they may require actions by employees in the government who are simply not at their desks and not answering emails or phones.” — Stephanie Senecastro, quoted by Nancy Marshall Genser [01:55]

• Threats of Firings:

  • Office of Management and Budget issued guidance suggesting federal agency heads could consider firing workers in unfunded programs, or whose work is no longer aligned with presidential priorities.
  • The American Federation of Government Employees has filed a lawsuit, alleging these threats are unlawful.

  “The threats of mass firings are an unlawful abuse of power and violate the laws on how the government is supposed to function during a shutdown.” — Nancy Marshall Genser [02:28]

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2. The Fed’s Perspective: Navigating Economic Uncertainty

Interview with Susan M. Collins, President & CEO, Federal Reserve Bank of Boston

• Fed Operations During Shutdown:

  • The Federal Reserve continues normal operations, but may lose access to some key economic data that is interrupted by the shutdown.

  “The Federal Reserve System continues regular operations...but certainly some of the key data that we look at would likely be delayed, and that can create challenges.” — Susan M. Collins [04:39]

• Tariffs and Inflation:

  • New tariffs are expected to influence inflation, but the effects are unfolding gradually.
  • Companies’ inventories, uncertainty about duration, and prior price increases all affect how quickly tariffs push up prices.

  “While we are seeing some impact of tariffs on goods prices… it’s not surprising to me that it’s taking some time for that to unfold... The belief that [tariffs] would be more long-lasting has increased over time.” — Susan M. Collins [05:25]

• Job Market Outlook:

  • Job growth is described as “anemic,” with both demand and supply for labor down, partly due to immigration restrictions.
  • There’s a “curious balance,” with low job growth but not yet a significant rise in unemployment.

  “I would call job growth anemic in many sectors... I don’t rule out the possibility that… we do start to see a more meaningful increase in the unemployment rate.” — Susan M. Collins [06:36]

• Fed’s Inflation Mandate:

  • The Fed must maintain “low and stable inflation,” as mandated by Congress, regardless of whether current price spikes come from tariffs or other sources.
  • Price stability is foundational for long-term employment and economic vibrancy.

  “Restoring price stability matters for people and firms. And it also creates an environment... in which you have economic vibrancy and you can really sustain over time, maximum employment.” — Susan M. Collins [07:29]

• Future Rate Cuts?

  • Despite a recent rate cut, Collins says more changes will depend on the evolving data—especially inflation and labor market signals.

  “Inflation is still elevated and the labor market risks have increased a bit, with the softening, in particular the anemic labor demand.” — Susan M. Collins [08:09]

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Memorable Quotes

• On the shutdown’s ripple effects:

  “They may require actions by employees in the government who are simply not at their desks and not answering emails or phones.” — Stephanie Senecastro (quoted by Nancy Marshall Genser), [01:55]

• On the challenge for the Fed:

  “Certainly some of the key data that we look at would likely be delayed, and that can create challenges.” — Susan M. Collins, [04:39]

• On employment trends:

  “There’s this curious kind of balance… we have seen relatively little increase in unemployment.” — Susan M. Collins, [06:36]

• On why price stability matters:

  “Restoring price stability matters for people and firms. And it also creates an environment… in which you have economic vibrancy...” — Susan M. Collins, [07:29]

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Timestamps for Important Segments

• 00:01–01:06: (Skip) Podcast subscription and sponsor messages
• 01:06–02:54: Effects of the government shutdown on federal workers and contractors (Nancy Marshall Genser, Stephanie Senecastro)
• 03:56–08:32: Federal Reserve's response to economic uncertainty (Interview with Susan M. Collins)
  • [04:39] How the Fed functions during a shutdown
  • [05:25] Tariffs and inflation effects explained
  • [06:36] State of the job market
  • [07:29] Fed’s approach to inflation and price stability
  • [08:09] Will there be more rate cuts?

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Summary Takeaway

The episode provides a concise overview of the real-world turmoil from the federal government shutdown, detailing especially how it disrupts workers and the companies dependent on federal contracts. It segues into an in-depth conversation with Federal Reserve Bank of Boston’s president, who lays out the tough choices, unpredictable data flow, and uncharted territory the Fed must navigate amid shutdowns, tariffs, and a cooling labor market. For those navigating work, investment, or policy in these uncertain times, this episode underscores both immediate challenges and the systemic ripple effects still unfolding.

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Transcript

[Marketplace Host]

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[Sabri Benishore]

Yup, it happened from Marketplace. I'm Sabri Benishore in for David Brancaccio. The slow moving train wreck we've been watching for a week has indeed wrecked the government shutdown started at midnight. Hundreds of thousands of federal workers will be furloughed. The Trump administration is threatening to fire others. Marketplace's Nancy Marshall Genser has more.

[Nancy Marshall Genser]

The Congressional Budget Office estimates that about 750,000 federal employees could be furloughed during the shutdown. Some federal workers deemed essential, like air traffic controllers and baggage screeners, will work without pay. Federal employees are guaranteed back pay when the government reopens. That's not the case for federal contractors. Stephanie Senecastro is president of the Professional Services Council, a contractor trade group. She says they'll keep working, or trying to.

[Susan M. Collins]

At least one big impact, though, is that they may require actions by employees in the government who are simply not at their desks and not answering emails or phones. Or these contractors may require access to.

[Nancy Marshall Genser]

Government facilities, or they may find the employee they're trying to reach has been fired. The Office of Management and Budget issued a memo to federal agency heads telling them to consider firing workers in programs without funding or whose work is not consistent with the president's priorities. The American Federation of Government Employees has filed a lawsuit saying the threats of mass firings are an unlawful abuse of power and violate the laws on how the government is supposed to function during a shutdown. I'm Nancy Marshall Genser for Marketplace.

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[Sabri Benishore]

The Federal Reserve is walking a tightrope in so many ways right now. It bears two burdens required by law Keep inflation under control and get as many people employed in the economy as possible. And to do that, it has to read the economy at a time when the economy is hard to read. And so much is changing that's making that job even tougher. Tariffs, stubborn inflation, a slowing labor market, now a government shutdown. To get a glimpse of how the Fed is thinking about this, we sat down with Susan M. Collins, President and CEO of the Federal Reserve bank of Boston. We started by talking about the government. We are talking some 12 hours before a government shutdown may happen. What do you do under a government shutdown?

[Susan M. Collins]

Well, the Federal Reserve System continues regular operations, so it would not impact all of the things that we do. We would continue operating as usual. And that means doing what we can to understand the economy. Certainly some of the key data that we look at would likely be delayed, and that can create challenges. At the same time, we look at a wide range of data to understand economic conditions and to develop our outlooks.

[Sabri Benishore]

We have a bunch of new tariffs in place or coming soon on pharmaceuticals, on furniture, on timber. What is your view on whether tariffs are going to meaningfully affect inflation and.

[Susan M. Collins]

If so, when there are still uncertainties about exactly where tariffs will land. And it's also the case that while we are seeing some impact of tariffs on goods prices at the same time, it's is not surprising to me that it's taking some time for that to unfold, actually for a few reasons. One is, of course, there were some inventories that firms had. I think the uncertainty about how long tariffs might last, especially in an environment where price levels have already increased because of past inflation and tariffs. When firms think that they will be more long lasting, they expect to pass them through further. And the belief that they would be more long lasting has increased over time. So that's another reason why it's not surprising to me that it's taking some time for the tariffs to show through. But it's hard to know exactly where things will settle because it's still unfolding.

[Sabri Benishore]

Of course, the other part of your mandate is full employment. The job market is slowing down. Where do you see it going this year?

[Susan M. Collins]

I would call job growth anemic in many sectors. And at the same time, though, that reflects both a decline in labor demand but also a decline in labor supply, largely likely reflecting immigration restrictions and perhaps some other factors as well. And so the kind of unusual part to that is we have seen relatively little increase in unemployment. So there's this curious kind of balance. And I don't rule out the possibility that that really anemic labor demand means that we do start to see a more meaningful increase in the unemployment rate.

[Sabri Benishore]

The inflation that we're looking at today seems different. You know, it could be a one time hit from tariffs and it's focused on imported goods. What can fed interest rates do about that and why worry about it as much?

[Susan M. Collins]

So very clear reasons why worry about it. So first of all, as part of our mandate from Congress, we are charged with price stability, by which I mean low and stable inflation. You know, in an environment where no one's thinking about inflation, we still have an environment where everyone's thinking about inflation. And so restoring price stability matters for people and firms. And it also creates an environment, price stability, in which you have economic vibrancy and you can really sustain over time, maximum employment.

[Sabri Benishore]

The FOMC voted to cut rates a couple weeks ago. Do you think we need another one?

[Susan M. Collins]

We'll have to wait and see where the data is again. Inflation is still elevated and the labor market risks have increased a bit with the softening, in particular the anemic labor demand.

[Sabri Benishore]

Susan M. Collins, President and CEO of the Federal Reserve bank of Boston, thank you so much.

[Susan M. Collins]

Thank you. A pleasure to be here. And back again.

[Sabri Benishore]

You can hear more of our conversation with President [e-mail] we covered a lot of ground in New York. I'm Sabri Ben, ashore with the Marketplace morning Report from 8pm American Public Media.

[Kimberly Adams]

I'm Kimberly Adams, host of Make Me Smart, a podcast from Marketplace that makes today make sense. Join me throughout the week as I dig into the biggest stories in tech culture and the economy. Whether it's a vibe check on the job market or the latest on China US Relations, Make Me Smart helps you understand how the headlines actually impact your daily life. Listen to Make Me Smart on your favorite podcast.

[Susan M. Collins]

Apparently.