How a shutdown can expand White House control over spending

A federal shutdown does not simply switch the government off. It shifts power to the executive branch in ways investors often overlook.

When appropriations lapse, the Office of Management and Budget inside the White House becomes the traffic cop for what continues and what stops, and later sets the tempo for outlays under any short term funding patch.

That combination can tilt near term cash flows across agencies, contractors and grantees even if Congress ultimately restores money.

The Antideficiency Act bars most new obligations without appropriations, but it recognizes exceptions for activities required by statute, those necessarily implied by continuing functions, emergencies that threaten life or property, and duties tied to the presidency.

OMB’s shutdown playbook, updated in August, directs agencies to prepare and execute “orderly shutdown” plans and to route questions through OMB and the Justice Department’s Office of Legal Counsel.

Crucially, agency heads decide which activities are excepted, but they do so within OMB’s framework and with OMB review, which centralizes judgment in the Executive Office of the President.

That means the White House budget office has practical leverage over operational choices with market relevance.

Air traffic control, border protection and other public safety functions typically continue, while many permitting, grant making and non-urgent regulatory tasks pause.

Social Security and Medicare payments keep going because they are mandatory, though some service desks slim down.

For investors in health care, transport, defense and federal IT, the nuance is not whether programs exist, but whether invoices can be issued, staff can work and awards can be signed.

The Congressional Research Service summarizes the framework and the discretion embedded in it, noting OMB’s central role and the requirement for every agency to maintain a current contingency plan.

After the 2018–19 lapse, the Government Accountability Office found the Interior Department broke appropriations law by using recreation fees to fund trash collection and restroom maintenance at open national parks, and warned that repeating the “two step” workaround would be a knowing and willful violation.

That opinion illustrates that while the White House can apply judgment, it cannot invent new money. Lines between lawful exceptions and overreach matter, and mistakes can carry penalties.

The other place executive influence appears is the restart. If a continuing resolution arrives, OMB apportions funds at a pro rata rate and instructs agencies to operate at the most limited level to avoid prejudging Congress’s final decisions.

The guidance discourages front-loaded obligations and often requires special approval for any “spend faster” exception.

In practice, that lets the White House meter the pace of obligations early in the fiscal year and delay actions that would otherwise concentrate outlays, which can ripple through sectors tied to federal grants and contracts.

Treasury market plumbing usually keeps functioning in a shutdown, but the flow of fiscal impulse into the real economy can soften as agencies idle discretionary work.

Our recent analysis on how tariffs, energy costs and government outlays shape inflation helps explain why timing shifts in federal spending can nudge near term price dynamics and growth.

In that context, investors tracking inflation sensitive assets may want to revisit positions alongside updated expectations for when stalled obligations resume.

The policy debate around shutdowns often collides with central bank signaling. When risk assets recoil on fiscal uncertainty, dollar and rate moves reflect both the likely duration of a lapse and the path of later catch-up spending.

We saw similar crosscurrents when global currencies steadied after the Fed’s recent caution, which filtered through rates and the growth outlook. That feedback loop can reappear if a shutdown drags.

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