Will there be another US government shutdown before January 31st?

1. Market signal

Polymarket — a decentralized prediction platform — is implying that the United States government is unlikely to pass a funding bill before the 31 January 2026 deadline. Its “No bill passed by Jan 31” contract was trading at around 80% probability.

External data services confirm this surge:

• RootData notes that Polymarket’s probability of a shutdown jumped from 9% on 24 January to about 80% over the following weekend.
• iHeart Media’s Q101.9 reported that traders were pricing roughly 79% odds of a shutdown.

These markets treat a contract trading at 80¢ per $1 as an 80% chance of an event occurring, but this remains a market-implied expectation, not a certainty. Prediction markets aggregate the incentives of traders who stake money on outcomes; high prices signal consensus expectations and can be a useful barometer of sentiment, though they can be wrong if participants misjudge political or economic dynamics.

2. Why this event has economic impact

A government shutdown halts all “non-essential” federal spending. Each week of closure typically subtracts about 0.1% to 0.2% from U.S. gross domestic product, with historical shutdowns lasting a median of 12 days.

If Congress fails to act by 31 January:

• Hundreds of thousands of federal employees will be furloughed or work without pay.
• Transportation Security Administration (TSA) agents and air-traffic controllers are already working without pay; prolonged nonpayment could worsen staffing shortages and cause flight delays, hampering business travel and cargo throughput.
• Businesses requiring federal licenses (e.g. breweries and distilleries) cannot receive approvals.
• Initial public offerings (IPOs) pause because the Securities and Exchange Commission (SEC) cannot process registrations.
• Delays in processing federal loans hurt small businesses, farmers and low-income borrowers.

Shutdowns also suspend the release of federal economic data. Russell Investments warns that delayed jobs reports make it harder for investors and policymakers to gauge the labour market. Without timely data, central banks may operate with greater uncertainty, increasing volatility in interest-rate-sensitive assets.

On the consumer side:

• Federal nutrition programs such as WIC risk running out of funds.
• Up to 40 million Americans could lose access to food assistance if a closure drags on.

These effects dampen consumption and confidence, potentially weakening sectors reliant on discretionary spending.

3. Who could benefit / who could be hurt

Potential beneficiaries

• Alternative investments
  In a prolonged shutdown, investors often pivot into gold and cryptocurrencies. Safe-haven assets may attract flows as Congress tussles over funding.

• Government bonds and fixed income
  A risk-off environment usually drives demand for U.S. Treasuries. Money-market funds and short-duration bond ETFs may also benefit.

• International diversification
  Persistent U.S. fiscal risk may push investors toward non-U.S. equities and bonds. Safe-haven currencies such as the Swiss franc and Japanese yen could benefit.

Likely losers

• Small federal contractors and defence supply chains
  Smaller suppliers face cash-flow disruptions and layoffs due to delayed funding.

• Travel and transportation
  Staffing stress among air-traffic personnel leads to flight cancellations and weaker travel demand.

• IPO and capital-markets activity
  IPOs halt as the SEC cannot process filings, delaying exits for venture-backed firms.

• Small businesses and rural economies
  Firms requiring permits or loans face delays; reduced public benefits weigh on local consumption.

• Risk-on equities
  Consumer discretionary, financials and cyclical sectors may underperform amid rising uncertainty.

4. Where capital could move

If shutdown expectations materialize, markets may shift into a risk-off posture:

• Rotation out of cyclical equities
• Inflows into treasuries, money-market instruments, gold and crypto
• Increased demand for precious metals
• Slower private-market commitments from institutional investors
• Pressure on the U.S. dollar amid fiscal concerns

If a shutdown is avoided, markets could see a relief rally, particularly in beaten-down sectors such as travel and small-cap growth. However, many investors may use the rebound to rebalance rather than increase risk, given persistent macro uncertainties.

4b. Time horizon and market sensitivity

Immediate effects

Market reactions are typically muted. Previous shutdowns saw limited movement in equities and treasuries. Safe-haven flows and IPO delays would appear quickly, while furloughs would immediately affect household cash flow.

Medium-term

Risks escalate if the shutdown persists:

• Each week adds 0.1–0.2 pp of GDP drag
• Greater likelihood of permanent job cuts
• Deeper revenue hits for contractors
• Spillovers into travel, lending and consumer spending

Market sensitivity will depend on congressional signalling and how the Federal Reserve interprets delayed data.

5. What the market may not have fully priced yet

• Data blackout and monetary-policy uncertainty
  Delayed releases of payrolls and retail sales may skew interest-rate expectations.

• Permanent labour-market disruptions
  Lasting federal job losses could weigh on consumption and labour supply.

• Supply-chain and regional impacts
  Rural economies and specialised contractors may face prolonged stress, affecting commodities and local revenues.

• Credit-rating and funding costs
  Prolonged political gridlock could revive sovereign-credit concerns and widen credit spreads.

Conclusion

Prediction markets are signalling a high probability of a U.S. government shutdown. While not a certainty, the risk warrants preparation. A brief shutdown would likely have limited impact, but a prolonged one could favour safe-haven assets, pressure federally exposed sectors and reveal under-appreciated vulnerabilities. Over the longer term, inflation, monetary policy and corporate fundamentals remain dominant, but shutdown dynamics could temporarily reshape capital flows.