Federal holidays

What Are Federal Holidays?

Federal holidays are designated days off from work for federal government employees in the United States. These holidays are established by law and typically result in the closure of non-essential federal government offices, including agencies and federal courts. While not universally mandated for private sector businesses or state and local governments, their observance often influences the operating schedules of financial markets and other industries. The concept of federal holidays falls under the broader category of Macroeconomics, as they impact national productivity, consumer behavior, and the functioning of various sectors within the labor market. The observance of a federal holiday can influence everything from trading volume in stock markets to the timing of government data releases.

History and Origin

The establishment of federal holidays in the United States has evolved over time. The first four congressionally designated federal holidays—New Year's Day, Independence Day, Thanksgiving Day, and Christmas Day—were created in 1870, primarily granting paid time off to federal workers in the District of Columbia. George Washington's Birthday was added in 1880. By 1885, Congress extended holiday coverage for some holidays to all federal employees.

A ¹⁷significant development occurred with the passage of the Uniform Monday Holiday Act in 1968, which aimed to create more three-day weekends for federal employees and encourage travel and leisure. Thi¹⁶s act, effective January 1, 1971, moved several holidays—Washington's Birthday (now often called Presidents' Day), Memorial Day, Columbus Day, and initially Veterans Day—to specific Mondays. While V¹⁴, ¹⁵eterans Day was later moved back to November 11 by an act of Congress in 1975 (effective 1978), the Uniform Monday Holiday Act fundamentally changed how many Americans observe these national days. More re¹², ¹³cently, Juneteenth National Independence Day was recognized as a federal holiday in 2021.

Key Takeaways

• Federal holidays are statutory days off for U.S. federal employees, leading to the closure of many government offices.
• They influence the operating schedules of various sectors, most notably financial markets like the New York Stock Exchange and Nasdaq.
• The Uniform Monday Holiday Act of 1968 significantly standardized the observance of several holidays on Mondays, creating three-day weekends.
• While they can stimulate consumer spending in certain sectors like tourism, federal holidays can also lead to temporary reductions in overall economic activity due to business closures.
• Financial markets often exhibit distinct trading patterns around federal holidays, commonly referred to as the "holiday effect."

Interpreting Federal Holidays

Understanding federal holidays is crucial for anyone involved in finance, business, or government affairs, as their observance directly impacts operational calendars. For example, major financial institutions, including the Federal Reserve and stock exchanges, generally close on these days. This me¹⁰, ¹¹ans that during a federal holiday, there is typically no trading in equities or government bonds, and key economic data releases might be delayed.

Beyond financial markets, the closure of federal agencies means that services such as passport applications, postal services (except for limited operations), and many government-to-business interactions are temporarily paused. For economists, the timing of federal holidays can also subtly influence short-term Gross Domestic Product figures and employment statistics by affecting the number of working days in a given period.

Hypothetical Example

Consider a hypothetical investor, Sarah, who trades actively on the U.S. stock market. She plans to execute a significant trade of a particular stock. She checks the trading calendar and notes that Monday, May 26, is Memorial Day, a federal holiday. The New York Stock Exchange (NYSE) and Nasdaq will be closed, meaning no trading will occur on that day. If Sarah needs to sell her shares before the holiday for liquidity reasons, she must complete her transaction by the close of business on the preceding Friday. If she waits until Tuesday, May 27, she might find that market conditions or the stock's price have changed over the extended weekend due to external news or global market movements, highlighting the importance of being aware of federal holidays for timely investment decisions and managing market liquidity.

Practical Applications

Federal holidays have several practical applications across various financial and economic domains:

• Financial Market Closures: U.S. stock markets, including the NYSE and Nasdaq, and bond markets observe federal holidays. This means no trading activity on these days, impacting traders, investors, and market analysts. For example, in 2025, markets are scheduled to be closed for federal holidays such as New Year's Day, Martin Luther King Jr. Day, and Memorial Day. The Fed⁸, ⁹eral Reserve also maintains a detailed holiday schedule for its financial services, which affects bank operations nationwide.
• B⁷anking Operations: While some banks may remain open for limited hours or offer digital services, most federally chartered banks and credit unions adhere to the federal holiday schedule, affecting services like wire transfers and check processing.
• Government Service Availability: Many government offices, including the Internal Revenue Service (IRS) and Social Security Administration (SSA), are closed. This can impact the processing of tax filings, benefit payments, and other government-related transactions.
• Economic Impact Analysis: Economists and policymakers monitor how federal holidays affect economic growth and productivity. While holidays can boost industries like tourism and retail through increased consumer spending, they can also result in lost productivity for sectors that shut down.
• S⁶upply Chain and Logistics: Businesses reliant on federal services, such as mail delivery or customs processing, must factor federal holidays into their supply chain and logistics planning.

Limitations and Criticisms

While federal holidays provide valuable rest for employees and opportunities for leisure, they also present certain limitations and can face criticism from an economic perspective. The closure of federal offices and financial markets can lead to temporary disruptions in business operations and reduced overall productivity. For industries operating on tight schedules or dealing with international clients, federal holidays in the U.S. can create misalignment with global capital markets that may remain open. This can lead to reduced trading volume and potentially increased volatility if significant global events occur during U.S. market closures.

Critic⁵s sometimes point to the economic cost of lost workdays, although this is often balanced by the benefits of employee morale, increased consumer spending in certain sectors, and the cultural significance of the holidays. Some argue that the impact of a federal holiday on productivity can be mitigated by businesses adjusting their operations or by the nature of the economy shifting towards more service-oriented and less manufacturing-dependent output. However⁴, for businesses with fixed production cycles or those heavily reliant on government services, the impact can be more pronounced, affecting revenue and operational efficiency. Furthermore, the "holiday effect" in financial markets, where stock prices tend to increase before a holiday, can be a short-term anomaly rather than a reliable long-term investment strategy.

Fed³eral Holidays vs. Public Holidays

The terms "federal holidays" and "public holidays" are often used interchangeably, but there is a distinct difference, particularly in the United States. Federal holidays are officially designated by the U.S. Congress and apply specifically to federal employees, resulting in the closure of non-essential federal government offices and often influencing the operating hours of the Federal Reserve System. For instance, the determination of monetary policy by the Federal Reserve is not directly impacted by holiday closures, but the practical execution of some banking functions is.

In contrast, public holidays is a broader term that can refer to any day observed by a state, local government, or private businesses. While many public holidays align with federal holidays, states and even individual municipalities have the authority to designate their own legal holidays. This means that a day observed as a public holiday in one state might not be in another, and a business might choose to close for a public holiday even if it's not a federal one. For example, some states may observe additional holidays not recognized at the federal level, impacting local fiscal policy and business operations. Therefore, while all federal holidays are generally considered public holidays, not all public holidays are federal holidays.

FAQs

How many federal holidays are there in the U.S.?

There are currently 11 permanent federal holidays observed in the United States. These include New Year's Day, Martin Luther King, Jr.'s Birthday, Washington's Birthday, Memorial Day, Juneteenth National Independence Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.

Do stock markets close on all federal holidays?

The major U.S. stock exchanges, like the NYSE and Nasdaq, typically close on all federal holidays. However, they also close on Good Friday, which is not a federal holiday, and they remain open on Veterans Day and Columbus Day, which are federal holidays. Investo²rs should consult the specific exchange's calendar for precise closing dates to account for potential impacts on interest rates and trading schedules.

What is the "holiday effect" in financial markets?

The "holiday effect" refers to an observed tendency for stock prices to experience positive returns on the trading day immediately preceding a market holiday. While w¹idely discussed, it is considered a market anomaly and is not a guaranteed outcome, influenced by factors such as investor sentiment and potentially reduced market liquidity due to fewer active traders.

Are all businesses required to close on federal holidays?

No, only non-essential federal government offices are required by law to close on federal holidays. Private businesses and state or local governments are not mandated to observe these holidays but often choose to do so. Some may operate with reduced staff or adjusted hours, while others may remain fully open, impacting local economies and potentially contributing to inflation through changes in demand or supply.