• Chicago Fed President Austan Goolsbee highlights services inflation as a key worry before the recent federal shutdown.
  • The longest U.S. government shutdown in history, lasting from October to mid-November 2025, caused significant economic damage and data gaps.
  • The Congressional Budget Office estimates the shutdown reduced Q4 2025 GDP by about $18 billion, with at least $7 billion in permanently lost output expected by end-2026.

Services Inflation Concerns Amid Shutdown Fallout

Chicago Fed President Austan Goolsbee has sounded the alarm on services inflation, noting it was already worrisome before the recent U.S. federal government shutdown. The shutdown, which began on October 1 after Congress failed to pass appropriations and ended in mid-November, became the longest in U.S. history, exacerbating economic challenges and complicating inflation control efforts.

"Services inflation was a central concern even before this disruption," Goolsbee said, according to people familiar with his recent remarks. The shutdown hit consumer spending and government outlays, while delaying key inflation and labor data releases, leaving the Fed "flying blind" at a critical juncture. Core services prices, particularly in areas like shelter and non-energy services, were running above the Fed's 2% target prior to the shutdown, adding to policymakers' focus on this "sticky" component of inflation.

Economic Impact and Data Gaps

The Congressional Budget Office estimates the shutdown reduced U.S. GDP by about $18 billion in the fourth quarter of 2025 alone, with at least $7 billion in permanently lost output projected by the end of 2026. Each additional week of the shutdown was estimated to cost roughly $7 billion in lost output nationally, according to analysts. This has forced a reassessment of growth trajectories, with economists noting that the shutdown shaved 0.8–1.5 percentage points from annualized quarterly GDP growth, depending on duration estimates.

Local governments report that the shutdown blocked or slowed federal funds, hurt tourism in areas reliant on federal sites, and disrupted small-business lending—about 4,800 firms were unable to secure $2.5 billion in SBA-backed loans so far. Around 1.4 million federal employees were furloughed or working without pay, leading to missed paychecks and forced cutbacks in consumption, which in turn dampened service-sector demand.

Policy Implications and Future Outlook

Goolsbee, who participates in FOMC deliberations on interest rates and inflation, emphasized that the data gaps from the shutdown complicate efforts to judge and control inflation. "Without timely data, it's harder to make informed decisions on monetary policy," he was paraphrased as saying. This comes at a time when services inflation remains a pivotal issue for the Fed, with persistent price pressures potentially supporting a higher-for-longer stance on interest rates.

In the short term, economists expect a rebound in Q1 2026 GDP growth as back pay and delayed spending flow through, partially offsetting Q4 weakness. However, about 20% of shutdown-related output loss is estimated to be permanent, especially in categories like travel and missed services. Analysts from major banks, such as J.P. Morgan and RBC, have noted that while markets focus on broader macro trends, the latest shutdown notably distorted quarterly data and complicates inflation tracking.

Looking ahead, the combination of sticky services inflation and recurring budget brinkmanship could keep the Fed cautious about cutting rates too quickly. Goolsbee's concerns underscore the challenges in balancing growth and inflation control amid political uncertainties. Efforts to reach the Fed for additional comments were not immediately successful, but sources indicate that policymakers are closely monitoring services sector data as it becomes available post-shutdown.

Correction: An earlier version of this article misstated the duration of the shutdown; it ended in mid-November 2025, not late November.