Personal Finance
How Trump, DOGE job cuts may affect the U.S. economy
Protestors in New York City demonstrate against the push by President Donald Trump and Elon Musk, who leads the so-called Department of Government Efficiency, to gut federal services and impose mass layoffs, Feb. 19, 2025.
Michael Nigro/Pacific Press/LightRocket via Getty Images
The Trump administration’s purge of federal workers may ultimately amount to the biggest job cut in U.S. history, which is likely to have ramifications for the economy, especially at the local level, according to economists.
The White House, with the help of Elon Musk’s so-called Department of Government Efficiency, has fired or offered buyouts to workers across the federal government, the nation’s largest employer.
While the precise scale of the job cuts is as yet unclear, evidence suggests it’s at least in the tens of thousands so far, economists said.
The Trump administration directed federal agencies to dismiss “probationary” employees. Probationary workers are more-recent hires who have been with the federal government for only a year or two and who do not yet have full civil service protections.
There were about 220,000 federal employees with less than a year of tenure as of May 2024, according to the most recent data from the U.S. Office of Personnel Management.
Additionally, more than 75,000 federal workers have accepted a buyout offer, according to a Trump administration official. They agreed to resign but get paid through September.
The total of these two groups — nearly 300,000 workers — would make these actions amount to the “largest job cut in American history (by a mile),” Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote Tuesday.
That sum doesn’t include others who may be on the chopping block, such as contractors who work at the U.S. Agency for International Development. Career civil servants who got promotions in the past year are also at risk of losing their jobs, since they’re technically on probation in their new role, Jesse Rothstein, a public policy and economics professor at University of California, Berkeley, said in a podcast Thursday.
Job cuts have come from across the government, at agencies including the Internal Revenue Service, National Park Service, Consumer Financial Protection Bureau, and the departments of Agriculture, Education, Energy, Health and Human Services, Homeland Security, and Veterans Affairs, according to the Associated Press.
“We may soon find out the hard way that people drive the U.S. economy,” Cox wrote.
Assessing the scale of federal job cuts
Arlene Rusch, former Internal Revenue Service worker, shows an email notifying her that she has been laid off, as she leaves her office in downtown Denver, Colorado, Feb. 20, 2025. The IRS began laying off roughly 6,000 employees in the middle of tax season as the Trump administration slashes the federal workforce.
Hyoung Chang | Denver Post | Getty Images
The ultimate number of cuts isn’t likely to be as high as 300,000, economists said.
For example, there may be some crossover: Probationary workers who would have been fired may have accepted a buyout. Also, in some cases, the Trump administration tried hiring back workers who’d been terminated.
Public disclosures show more than 26,000 federal workers have already been fired, excluding buyouts, according to a research note Wednesday from investment bank Piper Sandler.
That’s about the same number of workers who lost their jobs when Lehman Brothers collapsed during the 2008 financial crisis, for example.
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But Thomas Ryan, a North America economist at Capital Economics, estimates that between 100,000 and 200,000 federal staffers have probably already been let go.
That would handily beat IBM’s 1993 purge of 60,000 workers, thought to be the largest corporate layoff in U.S. history. Among other notable corporate cuts, Citigroup and Sears, Roebuck & Co. each slashed about 50,000 jobs, in 2008 and 1993, respectively.
“Certainly if all 200,000-plus probationary workers are fired [without replacement] that would be historic,” Susan Houseman, senior economist at the nonpartisan W.E. Upjohn Institute for Employment Research, wrote in an e-mail.
Even among prior federal layoffs, the scale of potential cuts appears unprecedented, experts said.
The U.S. Army, for example, eliminated 50,000 jobs in September 2011 as former President Barack Obama withdrew troops from Afghanistan and Iraq, according to outplacement firm Challenger, Gray & Christmas. The U.S. Air Force announced plans in 2005 to reduce head count by 40,000, the firm said.
We may soon find out the hard way that people drive the U.S. economy.
Callie Cox
chief market strategist at Ritholtz Wealth Management
The Bureau of Labor Statistics tracked data on federal mass layoffs from 1995 to 2003. During that period, mass layoffs affected anywhere from roughly 9,000 federal workers per year to 23,000 a year, the data show.
If the current federal job cuts “are not historic yet, it feels like we’re headed in that direction pretty quickly,” said Mark Zandi, chief economist at Moody’s.
The White House didn’t comment on the specific scale of cuts.
“President Trump and his administration are delivering on the American people’s mandate to eliminate wasteful spending and make federal agencies more efficient, which includes removing probationary employees who are not mission critical,” Anna Kelly, a White House spokesperson, said in a written statement. “This is part of President Trump’s sweeping effort to save taxpayer dollars, cut wasteful spending, and restore our broken economy.”
Potential economic impact
Job loss can be painful for household finances.
Affected workers who can’t quickly find new jobs may be forced to make ends meet without regular income. Unemployment benefits may offer a temporary stopgap to eligible workers, but they replace only about a third of prior wages, on average, according to Labor Department data.
The majority of workers who suffer job loss are affected long term, as they have trouble finding new full-time jobs and subsequently earn less money, according to a 2016 research paper by Henry Farber, professor emeritus of economics at Princeton University, who studied data from 1981 to 2015.
“There are economic impacts to [laid-off workers], their families, to the businesses they would have bought goods and services from,” said Erica Groshen, a senior economics advisor at Cornell University and former commissioner of the U.S. Bureau of Labor Statistics.
“The economic consequences of layoffs are like a domino effect that spread across local economies to businesses that seem to have no connection whatsoever to the federal government,” said Ernie Tedeschi, director of economics at the Yale University Budget Lab.
Laid-off workers may spend less at businesses such as local coffee shops, restaurants and day care facilities, he said.
There’s a psychological factor to mass layoffs, too, economists said. Other federal workers, fearful for their jobs, may pull back on spending and delay big-ticket purchases. Businesses with ties to the federal government or the federal workforce may stop hiring and investing due to uncertainty.
Washington, D.C., for example, is expected to suffer a “meaningful” increase in unemployment that would push the capital into a “mild recession,” Adam Kamins and Justin Begley, economists at Moody’s, wrote in a note Tuesday.
Close to 100,000 federal government positions will be eliminated or moved from Washington in the next couple of years, Kamins and Begley estimate. A “flood” of job applicants will limit the private sector’s ability to absorb them into the labor pool, they said.
The economies of Maryland and Virginia won’t suffer to the same degree but will be “materially” hurt due to their exposure to government employment, Kamins and Begley wrote.
Layoffs aren’t likely to show up in federal data for another month, and not until September for those who take the severance deal, according to Piper Sandler. Unemployment claims in Washington, D.C., for the week ended Feb. 8 were up 36% from the prior week.
‘Not recessionary’ on its own
Economists don’t expect the job cuts will have a huge impact on the overall U.S. economy, however.
If about 200,000 probationary workers were to lose their jobs, it would shave roughly one-tenth of a percentage point from annual U.S. gross domestic product, said Tedeschi, who served as chief economist at the White House Council of Economic Advisers during the Biden administration.
“This, on its own, is not recessionary,” he said.
Elon Musk, second from the left, walks along the colonnade at the White House on Feb. 19, 2025.
Win Mcnamee | Getty Images News | Getty Images
Ryan, of Capital Economics, said the scope of federal layoffs is relatively small when considered in the context of the U.S. labor market, which added roughly 1.5 million jobs in 2024. He said he expects most displaced federal workers to be rehired quickly since the economy is near full employment, “making any pain short-lived.”
Capital Economics hasn’t downgraded its economic growth forecasts due to the federal layoffs, Ryan said. That assessment includes potential ripple effects felt indirectly through the economy.
“Even adding the knock-on effects, it’s not going to plunge the U.S. into a recession,” Tedeschi said. “Let’s be realistic here.”
But mass layoffs add to the pressure already being placed on the economy by other Trump administration policies, such as tariffs and mass deportations, economists said.
“This was a healthy economy coming into 2025,” Tedeschi said. “And suddenly we have a number of serious potential headwinds that are stacking up. And this is one of them.”
The Federal Reserve held interest rates steady at the conclusion of its policy meeting on Wednesday.
In what could be Jerome Powell’s last as chair before President Donald Trump’s yet-to-be-confirmed nominee Kevin Warsh takes the helm, central bankers maintained the federal funds rate in a target range of 3.5% to 3.75%.
Inflation has surged since the war with Iran began, leaving policymakers with limited room to act, according to Sean Snaith, the director of the University of Central Florida’s Institute for Economic Forecasting. “We’re in a kind of suspended animation — between Iran and the Fed transition,” Snaith said.
Before the oil shock, inflation was holding above the Fed’s 2% target but not worsening. Now the jump in energy costs could have longer-term inflationary effects, economists say.
For Americans struggling in the face of higher gas prices and overall affordability challenges, the central bank’s decision to keep interest rates unchanged does little to ease budgetary pressures. “The cavalry isn’t coming anytime soon,” Snaith said.
How the Fed decision impacts you
The Fed’s benchmark sets what banks charge each other for overnight lending, but also has a trickle-down effect on many consumer borrowing and savings rates.
Short-term rates are more closely pegged to the prime rate, which is typically 3 percentage points above the federal funds rate. Longer-term rates, such as home loans, are more influenced by inflation and other economic factors.
Credit cards
Most credit cards have a short-term rate, so they track the Fed’s benchmark.
After the Fed cut rates three times in the second half of 2025, the average annual percentage rate has stayed just under 20%, according to Bankrate.
“Without Fed rate cuts, there’s not much reason to expect meaningful declines anytime soon, so carrying a balance will remain very expensive,” said Matt Schulz, chief credit analyst at LendingTree.
Mortgage rates
Fixed mortgage rates, on the other hand, don’t directly track the Fed but typically follow the lead of long-term Treasury rates.
Concerns about how the Iran war will impact the U.S. economy have already pushed the average rate for a 30-year, fixed-rate mortgage up to 6.38% as of Tuesday, from 5.99% at the end of February, according to Mortgage News Daily.
That leaves homeowners with existing low mortgage rates “feeling stuck,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. “Mortgages, more than any other credit type, work on a churn,” she said, referring to how a dip in rates can boost borrowing activity.
Student loans
Federal student loan rates are also fixed and based in part on the 10-year Treasury note, so most borrowers are somewhat shielded from Fed moves and recent economic uncertainty.
Current interest rates on undergraduate federal student loans made through June 30 are 6.39%, according to the U.S. Department of Education. Interest rates for the upcoming school year will be based in part on the May auction of the 10-year note.
Car loans
Auto loan rates are tied to several factors, including the Fed’s benchmark. Because financing costs remain elevated, new car buyers are taking on longer loans to keep their monthly payments manageable, according to the latest data from Edmunds.
Even so, with the rate on a five-year new car loan near 7%, the average monthly payment on a new car rose to $773 in the first quarter of 2026, an all-time high.
“Car buyers are in a tough spot right now because they’re getting squeezed from both ends: high sticker prices and high interest rates, with neither showing any signs of letting up,” said Joseph Yoon, consumer insights analyst at Edmunds.
“Until the rate picture shifts, buyers will keep stretching loan terms to make payments work, which only adds to the total cost of ownership down the road,” Yoon said.
Savings rates
While the Fed has no direct influence on deposit rates, the yields tend to be correlated with changes in the target federal funds rate. So, although rates on certificates of deposit and high-yield savings accounts have fallen from recent highs, they are holding above the annual rate of inflation.
For now, top-yielding online savings accounts and one-year CD rates pay around 4%, according to Bankrate.
“Yields on high-yield savings accounts and certificates of deposit are down from their peaks of a few years ago, but they’re still strong compared to what we’ve seen for most of the past decade,” Schulz said.
Milan Markovic | E+ | Getty Images
The average tax refund is 11.2% higher this season, compared with about the same period in 2025, according to the latest IRS filing data.
As of April 10, the average refund amount for individual filers was $3,397, up from $3,055 about one year ago, the IRS reported on Friday.
The IRS data reflects about 114 million individual returns received, out of about 164 million expected through Tax Day. Next week’s filing update is expected to include data through the April 15 deadline.
President Donald Trump‘s 2025 legislation, rebranded to the “working families tax cuts,” was a key talking point for Republicans on Tax Day.
With the November midterm elections approaching and Republicans defending slim majorities in Congress, many GOP lawmakers have highlighted Trump’s tax breaks and higher average refunds.
Meanwhile, affordability has been top of mind for many Americans amid rising costs of gas, electricity, food and other living expenses.
For filers who expected a refund this season, nearly one-quarter, or 23%, planned to use the funds to pay down credit card debt, and the same share said they would save the payment, according to the CNBC and SurveyMonkey Quarterly Money Survey, released in April. It polled 3,494 U.S. adults at the end of March.
Who benefited from Trump’s ‘big beautiful bill’
“It’s been a great tax season for the American people,” many of whom have benefited from Trump’s tax breaks, Treasury Secretary Scott Bessent said during a White House press briefing on Wednesday.
More than 53 million filers claimed at least one of Trump’s “signature new tax cuts” — the deductions for tip income, overtime earnings, seniors and auto loan interest — the Department of the Treasury also announced on Wednesday.
Those filers, who claimed the deductions on Schedule 1-A, have seen an average tax cut of over $800, according to the Treasury. Tax cuts can trigger a higher refund or reduce taxes owed, depending on the filer’s situation.
Some filers who itemize tax breaks have also seen benefits from the bigger federal deduction limit for state and local taxes, known as SALT. Trump’s legislation raised that cap to $40,000, up from $10,000, for 2025.
The latest SALT deduction limit change is expected to primarily benefit higher earners, according to a May 2025 analysis of various proposals from the Tax Foundation.
The Treasury has not released data on how many filers have claimed the SALT deduction during the 2026 filing season.
Traders work at the New York Stock Exchange on April 16, 2026.
NYSE
U.S. stocks climbed to record highs on Thursday against a backdrop of war, an oil supply shock and economic forecasts warning of stunted growth amid a protracted conflict.
Many investors may be thinking: Why?
Largely, it’s because the stock market is a barometer of what investors think will happen in the future, rather than an assessment of the present day, according to economists and market analysts.
Investors are essentially shrugging off the Middle East conflict as a blip that will be resolved relatively quickly, they said.
“The stock market isn’t trying to price what’s happening today,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. “The stock market is always trying to price what the world is going to look like six to 12 months from now.”
Why stocks have been ‘resilient’
The S&P 500, a U.S. stock index, fell about 8% in the initial weeks of the Iran war, from the start of the conflict on Feb. 28 to a recent low on March 30.
But stocks have rebounded since then, erasing all losses since the beginning of the war. The S&P 500 closed at an all-time high on Thursday — about 11% higher than its nadir at the end of March. That followed a record close on Wednesday.
“The market has remained very resilient in the face of the war and has rallied strongly on the prospect that it will be resolved,” said Mark Zandi, chief economist at Moody’s.
A ship waits to pass through the Strait of Hormuz following the two-week temporary ceasefire between the US and Iran, which is conditional on the opening of the strait, in Oman on April 8, 2026.
Shady Alassar | Anadolu | Getty Images
And while investors cheered the possibility of a diplomatic off-ramp to the conflict, the temporary ceasefire has appeared tenuous, with the U.S. and Iran each accusing the other of breaking the agreement.
Nations haven’t been able to reach a peace deal ahead of the ceasefire’s end. Vice President JD Vance said U.S. officials left peace talks in Pakistan over the weekend after the Iranian delegation refused to agree to American demands not to develop a nuclear weapon.
The markets ‘have memory’
Ultimately, the stock market is signaling a collective belief that tensions will ratchet down, the war will end in the near term and oil flows through the Strait of Hormuz will normalize, economists said.
That’s largely because investors have been conditioned to believe that President Donald Trump will back off if the economic pain becomes too intense, economists said — the so-called “TACO” trade, shorthand for “Trump always chickens out.”
“Investors strongly believe — and have been conditioned to believe — he’s going to stand down, find a way to pivot, declare victory and move on,” Zandi said.
Trump has pushed back on the notion of backing down, framing his brinkmanship as a savvy negotiating tactic.
Economists pointed to a recent example of this dynamic: in April 2025 during so-called liberation day, when the Trump administration levied a host of tariffs on U.S. trading partners.
Within days — after the stock market had cratered more than 12% — Trump announced a 90-day pause on those tariffs. Stocks then saw one of their biggest daily rallies in history following Trump’s reversal.
Investors remember that Trump often de-escalates geopolitical shocks — which is why they’ve seized on positive headlines that hint at progress in peace talks, for example, Seydl said.
“The markets have memory,” Seydl said.
AI stocks and the ‘tech boom’
Traders celebrating at the New York Stock Exchange on April 15, 2026, as the S&P 500 closed above the 7,000 level for the first time.
NYSE
There are other factors underpinning market resilience during wartime, economists said.
One is the investors’ enthusiasm for artificial intelligence and technology stocks, which account for almost half of the S&P 500’s market capitalization, Zandi said.
“Those stocks run on their own dynamic independent of anything, including the war in Iran,” Zandi said. “I think we would have been down a lot more and it would have been harder for us to recover had it not been for the very, very optimistic perspectives on AI.”
We’re in the middle of a “tech boom” — and investors are likely to remain optimistic until they think the tech cycle has run its course, Seydl said.
More broadly, stock investors are essentially making a bet on the future earnings growth of a company — and the earnings backdrop has been “pretty solid,” Seydl said.
Consumer spending appears to be stable, for example, economists said. And companies are getting a boost to their after-tax earnings from the GOP’s so-called “big beautiful bill,” which, among other things, made it easier to write off investments upfront and therefore reduce their tax liability, Zandi said.
Going forward
Experts said there will be an economic hit from the Iran war, though.
“Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated,” Pierre-Olivier Gourinchas, director of research at the International Monetary Fund, wrote Tuesday.
A protracted conflict risks deep and global economic pain, he wrote.
Even if the conflict is short-lived — as the broad market expects — stocks are unlikely to march much higher until it’s clear the U.S. is on the other side of the war and its economic fallout, Zandi said.
If investors are incorrect, and President Trump doesn’t back down or quickly extricate the U.S. from the war, the stock market may see a “full-blown correction” or worse, Zandi said. A stock market correction is a decline of at least 10% from recent highs.
“Everyone thinks they know what the script is,” Zandi said. “Now they just need to follow the script. If they don’t, the market will have some real problems.”
The uncertainty provides yet another example of why the average investor with a long time horizon should stick to their investment plan and ignore the noise, experts said.
“Trying to time the market is very difficult if not impossible for the average investor,” Seydl said. “It’s better to take a long-term perspective and ride out bouts of volatility.”
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