TO GET a sense of what Donald Trump’s first week did to the federal government, talk to people who work in it. “I’ve been with the government for over 10 years, I lived through the first Trump administration, and nothing compares to this,” says one Treasury employee. Some workers are busy scrubbing their personal social media for items that could be interpreted as disloyal. Others are scrubbing up their resumes, anticipating that they will soon be looking for new work. Those who plan to stay expect their jobs to get worse, as colleagues flee or are not replaced. Everyone is “in absolute panic mode”, says another senior civil servant.
As a candidate, Mr Trump promised that he would “shatter the deep state”. Since taking office, it has become more clear what he meant. In a barrage of executive orders, Mr Trump has asserted that he can do just about whatever he likes to the federal government. He has, he claims, “sole and exclusive authority” over the executive branch, to include hiring, firing and all spending decisions. In effect, Mr Trump is claiming he is not merely a president, putting into action laws enacted by the legislature. He is claiming to be something closer to a king, able to withhold or redirect expenditure as he sees fit.
On January 27th Mr Trump revealed quite how far he intends to push. He decreed that all grants and loans that the federal government makes—excepting disbursements for Social Security, Medicare, and some other vaguely defined categories—would be suspended the following day, even though Congress had approved them. This apparent usurpation of Congress’s role under Article I of the constitution was “sweeping and vast” and “really, really illegal”, says Eloise Pasachoff of Georgetown University law school. The memo laid out no legal justification for the freeze and on the evening of January 28th, a federal judge stopped it temporarily. The next day, the administration rescinded its memo; what happens next is unclear. A parallel freeze of all foreign aid created similar chaos.
In the meantime Mr Trump has launched an extralegal power grab almost as ambitious against the federal bureaucracy—the over 2m civil servants who actually implement federal policy. He has directly fired dozens of senior staff, including senior immigration officials, Department of Justice prosecutors and others he and his appointees have identified as being hostile to his goals. These included more than a dozen inspectors general (watchdogs who investigate departmental efficiency and wrongdoing). In the case of the inspectors general, the president is required by law to give 30 days notice and an explicit reason to justify firing. He did neither.
These decisions came on top of a complete hiring freeze across most departments (the military, immigration authorities, as well as jobs related to social security and veterans healthcare are exempt). He also reinstated an unimplemented order from his last term allowing his administration to redesignate any career civil service job as a political job, and thereby remove the usual job protections and sack whomever he wants. He has also pledged to shut down all “diversity, equity and inclusion” jobs, known as “deiA”, in government. To top it off, he banned all work from home.
The aim is transparently to get federal workers who do not like Mr Trump to leave. On January 28th, an email went out from the Office of Personnel Management (opm) offering every single federal employee “deferred resignation”. Essentially, the terms were: agree to leave this financial year and you can work from home until then. The touches—including instructions to reply with the word “RESIGN” by February 6th—implied the influence of Elon Musk, the billionaire head of Mr Trump’s “Department of Government Efficiency”, or “doge”. Since the opm is not actually a corporate hr department, the offer is unlikely to withstand scrutiny. Federal tech employees report that outsiders, many seemingly junior employees of Mr Musk’s companies, have come into offices to take over government it systems and do “code reviews”.
Were Mr Trump to make these changes stick—a questionable prospect—it would amount to “probably the most fundamental alteration of the civil service system since 1883” says Don Moynihan, of the Ford School of Public Policy at the University of Michigan (a verdict many in the White House would love). The president appears to have little interest in the idea that most government officials should be non-partisan specialists whose expertise is deployed to keep the public safe, among other benefits. Under Mr Trump’s plan, decisions about hiring and firing would be made by his political appointees.
According to Max Stier, of the Partnership for Public Service, a charity which works to improve government, Mr Trump is “tearing apart the civil service” so as to recreate “the spoils system” of government that persisted until the end of the 19th century. That was a model whereby new presidents came in and immediately distributed jobs to their pals as a reward for supporting their election campaigns.
Will he succeed? This seems unlikely, says Larry Jacobs, of the University of Minnesota. “Mr Trump’s orders, he says, are “impressively sweeping and breathtaking in their institutional arrogance” but he argues that much of what Mr Trump is trying to do will probably be undone by the courts or Congress. He points out that even after Mr Trump appointed sympathetic new members in his last term, the Supreme Court often overruled him. Congress has ceded much power to the presidency, but controlling the federal purse is a prerogative it is unlikely to yield readily.
Yet it could take years for challenges to work their way through the courts. The damage done in the meantime could be considerable. Employees who find other jobs after being pushed out will not necessarily return just because a court says their dismissal was wrong. Talented new hires will not join. And with government lawyers cowed by fears of firing, all manner of illegality could reign. Mr Stier worries about things like the Internal Revenue Service and the Department of Justice being used to punish Mr Trump’s enemies, without civil service lawyers able to say no.
Even the best-case outcome is not good. In the last Trump administration, hiring freezes caused parts of government to shrink and jam up (see chart). Some of this may have been intended: the issuing of green cards and citizenship applications ground to a halt thanks in part to cuts at the State Department. But queues also lengthened for basic government services like getting passports, or tax refunds.
Chart: The Economist
The “swamp”, as Mr Trump might call it, may feel like a lot of busybodies in Washington dc pushing around bits of paper. It is certainly true that it can often be slow, rule-bound and unaccountable. But a system based more on political loyalty than on merit is one primed for failure. Bureaucrats make sure that foods are not poisonous; that cars do not explode when they crash; and that toxic waste is not dumped into the wilderness. “The federal government is very vulnerable,” says Paul Light, a political scientist at New York University. Mr Trump, he says, risks becoming “the president of ‘I didn’t give a shit and a lot of people got killed.’” Uneasy lies the head that wears a crown. ■
U.S. President Donald Trump holds a chart next to U.S. Secretary of Commerce Howard Lutnick as Trump delivers remarks on tariffs in the Rose Garden at the White House in Washington, D.C., on April 2, 2025.
Carlos Barria | Reuters
The tariff policy outlined by President Donald Trump on Wednesday appears set to raise the level of U.S. import duties to the highest in more than 100 years.
The U.S. introduced a baseline 10% tariff on imports, but also steep country-by-country rates on some major trading partners, including China. The country-by-country rates appear to be related to the trade deficit the U.S. has with each trading partner.
Sarah Bianchi, Evercore ISI chief strategist of international political affairs and public policy, said in a note to clients late Wednesday that the new policies put the effective tariff rate above the level of around 20% set by 1930’s Smoot-Hawley Tariff Act, which is often cited by economists as a contributing factor to the Great Depression.
“A very tough and more bearish announcement that pushes the overall U.S. weighted average tariff rate to 24%, the highest in over 100 years – and likely headed to as high as 27% once anticipated 232s are complete,” Bianchi wrote. The “232s” is a reference to some sector-specific tariffs that could be added soon.
JPMorgan’s chief U.S. economist Michael Feroli came up with similar results when his team crunched the numbers.
“By our calculations this takes the average effective tariff rate from what had been prior to today’s announcement around 10% to just over 23%. … A White House official mentioned that other section 232 tariffs (e.g. chips, pharma, critical minerals) are still in the works, so the average effective rate could go even higher. Moreover, the executive order states that retaliation by US trading partners could result in even higher US tariffs,” Feroli said in a note to clients.
An estimate from Fitch Ratings was in the same range, with a report saying the tariff rate would hit its highest level since 1909.
Trump referenced the Smoot-Hawley Act in his Rose Garden remarks on Wednesday. The president said the issue was not the tariffs imposed in 1930 but the previous decision to remove the higher tariffs that existed earlier in the 20th century.
“It would have never happened if they had stayed with the tariff policy. It would have been a much different story. They tried to bring back tariffs to save our country, but it was gone. It was gone. It was too late,” Trump said.
The full economic impact of the new tariffs will likely depend on how long they are in place and if other countries retaliate. Trump and Treasury Secretary Scott Bessent have indicated that the country-by-country tariffs could come down if those trade partners change their policies.
U.S. Federal Reserve Chair Jerome Powell and U.S. President Donald Trump.
Craig Hudson | Evelyn Hockstein | Reuters
Now that President Donald Trump has set out his landmark tariff plans, the Federal Reserve finds itself in a potential policy box to choose between fighting inflation, boosting growth — or simply avoiding the fray and letting events take their course without intervention.
Should the president hold fast to his tougher-than-expected trade policy, there’s a material risk of at least near-term costs, namely the potential for higher prices and a slowdown in growth that could turn into a recession.
For the Fed, that presents a potential no-win situation.
The central bank is tasked with using its policy levers to ensure full employment and low prices, the so-called dual mandate of which policymakers speak. If tariffs present challenges to both, choosing whether to ease to support growth or tighten to fight inflation won’t be easy, as each courts its own peril.
“The problem for the Fed is that they’re going to have to be very reactive,” said Jonathan Pingle, chief U.S. economist at UBS. “They’re going to be watching prices rise, which might make them hesitant to respond to any growth weakness that materializes. I think it’s certainly going to make it very hard for them to be preemptive.”
Under normal conditions, the Fed likes to get ahead of things.
If it sees leading gauges of unemployment perk up, the Fed will cut interest rates to ease financial conditions and give companies more incentive to hire. If it sniffs out a coming rise in inflation, it can raise rates to dampen demand and bring down prices.
So what happens when both things occur at the same time?
Risks to waiting
The Fed hasn’t had to answer that question since the early 1980s, when then-Chair Paul Volcker, faced with such stagflation, chose to uphold the inflation side of the mandate and hike rates dramatically, tilting the economy into a recession.
In the current case, the choice will be tough, particularly coming on the heels of how the Jerome Powell-led central bank was flat-footed when prices started rising in 2021 and he and his colleagues dismissed the move as “transitory.” The word has been resurrected to describe the Fed’s general view on tariff-induced price increases.
“They do risk getting caught offsides with the potential magnitude of this kind of price increase, not unlike what happened in 2022 where, they might might feel the need to respond,” Pingle said. “In order for them to respond to weakening growth, they’re really going to have to wait until the growth does weaken and makes the case for them to move.”
To be sure, the Trump administration sees the tariffs as pro-growth and anti-inflation, though officials have acknowledged the potential for some bumpiness ahead.
“It’s time to change the rules and make the rules be stacked fairly with the United States of America,” Commerce Secretary Howard Lutnick told CNBC in a Thursday interview. ” We need to stop supporting the rest of the world and start supporting American workers.”
However, that could take some time as even Lutnick acknowledged that the administration is seeking a “re-ordering” of the global economic landscape.
Like many other Wall Street economists, Pingle spent the time since Trump announced the new tariffs Wednesday adapting forecasts for the potential impact.
Bracing for inflation and flat growth
The general consensus is that unless the duties are negotiated lower, they will take prospects for economic growth down to near-zero or perhaps even into recession, while putting core inflation in 2025 north of 3% and, according to some forecasts, as high as 5%. With the Fed targeting inflation at 2%, that’s a wide miss for its own policy objective.
“With price stability still not fully achieved, and tariffs threatening to push prices higher, policymakers may not be able to provide as much monetary support as the growth picture requires, and could even bind them from cutting rates at all,” wrote Seema Shah, chief global strategist at Principal Asset Management.
Traders, however, ramped up their bets that the Fed will act to boost growth rather than fight inflation.
As is often the reaction during a market wipeout like Thursday’s, the market raised the implied odds that the Fed will cut aggressively this year, going so far as to put the equivalent of four quarter-percentage-point reductions in play, according to the CME Group’s FedWatch tracker of futures pricing.
Shah, however, noted that “the path to easing has become narrower and more uncertain.”
Fed officials certainly haven’t provided any fodder for the notion of rate cuts anytime soon.
In a speech Thursday, Vice Chair Philip Jefferson stuck to the Fed’s recent script, insisting “there is no need to be in a hurry to make further policy rate adjustments. The current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”
Taking the cautious tone a step further, Governor Adriana Kugler said Wednesday afternoon — at the same time Trump was delivering his tariff presentation in the Rose Garden — that she expects the Fed to stay put until things clear up.
“I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable,” Kugler said, adding she “strongly supported” the decision in March to keep the Fed’s benchmark rate unchanged.
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Employees of the Department of Health and Human Services (HHS) hug each other as they queue outside the Mary E. Switzer Memorial Building, after it was reported that the Trump administration fired staff at the Centers for Disease Control and Prevention and at the Food and Drug Administration, as it embarked on its plan to cut 10,000 jobs at HHS, in Washington, D.C., U.S., April 1, 2025.
Kevin Lamarque | Reuters
A surge in federal government job cuts contributed to a near record-setting pace for announced layoffs in March, exceeded only by when the country shut down in 2020 for the Covid pandemic, according to a report Thursday from job placement firm Challenger, Gray & Christmas.
Furloughs in the federal government totaled 216,215 for the month, part of a total 275,240 reductions overall in the labor force. Some 280,253 layoffs across 27 agencies in the past two months have been linked to the Elon Musk-led Department of Government Efficiency and its efforts to pare down the federal workforce.
The monthly total was surpassed only by April and May of 2020 in the early days of the pandemic when employers announced combined reductions of more than 1 million, according to Challenger records going back to 1989.
“Job cut announcements were dominated last month by Department of Government Efficiency [DOGE] plans to eliminate positions in the federal government,” said Andrew Challenger, senior vice president and workplace expert at the firm. “It would have otherwise been a fairly quiet month for layoffs.”
However, DOGE has continued to cut aggressively across the government.
Various reports have indicated that the Veterans Affairs department could lose 80,000 jobs, the IRS is in line for some 18,000 reductions and Treasury is expected to drop a “substantial” level of workers as well, according to a court filing.
The year to date tally for federal government announced layoffs represents a 672% increase from the same period in 2024, according to Challenger.
To be sure, the outsized layoff plans haven’t made their way into other jobs data.
Weekly unemployment claims have held in a fairly tight range since President Donald Trump took office. Payroll growth has slowed a bit from its pace in 2024 but is still positive, while job openings have receded but only to around their pre-pandemic levels.
However, the Washington, D.C. area has been hit particularly hard by the announced layoffs, which have totaled 278,711 year to date for the city, according to the report.
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