UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'How bouncy is the bounce back?'
5 snips
Oct 8, 2025 This discussion dives into the economic implications of a potential US government shutdown, highlighting the contrasting impacts on federal workers and contractors. If President Trump's suggestion about withholding back pay is enforced, it could dampen the expected economic rebound. The podcast also examines Japan's disappointing earnings and the repercussions for the Bank of Japan, as well as Germany's faltering industrial production. Finally, it addresses the Federal Reserve's balancing act between a softening labor market and persistent inflation challenges.
AI Snips
Chapters
Transcript
Episode notes
Bounce Back Depends On Back Pay
- Government shutdowns usually cause a near-term output loss that is later partially offset by a rebound when government reopens.
- The rebound depends on furloughed workers receiving back pay and on contractors being compensated.
Withholding Back Pay Reduces Recovery
- If back pay is withheld, the usual rebound after a shutdown will be muted and growth loss larger.
- Furloughed workers may cut spending now if they cannot rebuild savings, worsening near-term demand.
Watch Back-Pay Signals Closely
- Expect weaker consumer spending among furloughed government workers if back pay is uncertain.
- Monitor policy decisions about back pay as they directly affect near-term consumption and growth.