The financial markets may be hit hard again! The White House is preparing to establish a "government shutdown contingency plan" as significant layoffs loom.

The White House has instructed federal agencies to prepare for a possible government shutdown on October 1st if there is no funding to keep the government running and no other sources of funding are available. This could lead to massive layoffs for government projects. The White House and the Office of Management and Budget (OMB) have asked federal agencies to prepare Reduction in Force (RIF) plans and other emergency measures in case of a government shutdown, indicating that the Trump administration is not willing to compromise with the Democratic Party and is preparing for the worst-case scenario of not being able to make timely appropriations. Overall, the risk of a government shutdown in the United States is imminent, but it will depend on whether the U.S. Congress can reach a short-term funding agreement (CR) by September 30th. Currently, there is significant disagreement between the House and Senate, and the White House has issued its most severe "government shutdown contingency plan". Not only is the federal government facing the risk of massive layoffs, but the financial markets are also at high risk, which is why U.S. stocks have been declining in recent days. If an agreement is not reached as the deadline approaches, traditional safe-haven assets such as gold and short-term interest rate volatility may increase, and market risk appetite may sharply decline, leading to continued market decline globally. The Office of Management and Budget (OMB) has also instructed federal agencies to prepare formal layoff notices for employees of projects that are completely incongruent with President Donald Trump's core priorities. "The RIF notices will be in addition to any furlough notices issued due to the interruption of appropriations," the OMB wrote in an internal memorandum. "Following the enactment of the FY 2026 appropriations, federal agencies should adjust their RIFs as necessary to retain the minimum number of employees required to carry out statutory government functions," the memorandum added. OMB noted that if Congress can successfully pass a "clean" continuing resolution to fund the government before the deadline, the steps outlined in the memorandum will no longer be necessary. During previous government shutdowns, federal employees were typically furloughed without pay until a budget agreement was reached, after which they returned to work. This "RIF contingency plan" is an additional option: the OMB memorandum requires agencies to prepare RIF notices for projects that have no alternative funding and are incongruent with the President's priorities, but also states that if a "clean" CR is passed, then no action is needed. Additionally, if implemented, at least advance notice and adherence to OPM procedures are required, and immediate permanent layoffs on the shutdown date are not possible. RIF (a form of permanent layoff) involves strict legal procedures and deadlines: unlike furlough, RIF involves job competition/placement, qualifications and preferences, appeal rights, and long-term furlough beyond a certain number of days can itself be considered part of the RIF process, so federal agencies typically cannot use a government shutdown as a shortcut for layoffs. Therefore, the feasibility and legality of the large-scale RIF proposed by the Trump administration in a shutdown scenario are being questioned and facing challenges on political and judicial fronts. An OMB official, speaking to the media, stated that ongoing projects, whether or not there is a shutdown, include social security, Medicare, law enforcement and immigration enforcement, veterans' benefits, military actions, and air traffic control. "This is an attempt at intimidation," said Senate Minority Leader Chuck Schumer (Democrat from New York) in response to OMB's directive. "These unnecessary layoff orders will either be overturned by the courts, or the government will ultimately rehire these employees, as has just happened in the past week." Federal funding is set to expire on September 30th. The Republican-controlled House has passed a temporary bill without Democratic support to extend federal operating funds until November 21st. In the Senate, at least seven Democratic votes are needed to pass the bill. Democrats' demands for the funding bill include extending subsidies for the Affordable Care Act.