Markets have yet to fully account for the economic consequences of mass government spending cuts, according to Danny Moses, the investor best known for his early bet against mortgage-backed securities before the 2008 financial crisis.
Moses told Fortune that the Department of Government Efficiency’s (DOGE) aggressive reductions have placed private contractors, small businesses, and the broader labor market in jeopardy.
“It’s not as simple as just, ‘We think there’s fraud, let’s cut waste, let’s cut expenses,’” Moses said.
Federal Layoffs and Deferred Resignations Reshape the Workforce
President Donald Trump’s administration has fired over 24,000 federal workers, according to court documents, with many struggling to transition into private-sector employment due to their specialized expertise. Additionally, 75,000 more workers opted for a deferred resignation program, allowing them to receive pay and benefits through September.
DOGE’s “Wall of Receipts” claims to have eliminated $115 billion in government spending. However, the legitimacy of these savings has been challenged by experts.
Market Uncertainty Grows as Federal Reserve Holds Steady
The administration’s shifting stance on tariffs has further unsettled markets, leading companies to reconsider their strategic plans. Meanwhile, Federal Reserve Chair Jerome Powell has opted to keep interest rates unchanged as the full effects of these policies unfold.
‘An Unvirtuous Cycle’ of Economic Disruption
Moses argued that investor optimism is misplaced, warning that consumer confidence has already taken a hit, experiencing its sharpest decline in four years.
“It’s not just about the federal workers, and it’s not just about the expenses out of those programs. It’s about the contracts with the private sector,” Moses told Fortune.
Federal contract spending reached approximately $759 billion in fiscal year 2023, with small businesses receiving about $171.5 billion, according to the U.S. Government Accountability Office. Musk’s companies alone hold at least $20 billion in government contracts.
However, DOGE’s aggressive cost-cutting measures have already impacted major players. Accenture CEO Julie Spellman Sweet informed investors that its Federal Services business, which comprises 8% of global revenue, had lost U.S. government contracts due to DOGE’s policies. Following the announcement, Accenture’s stock price dropped by 7.3%.
The job losses, coupled with contract reductions, have triggered what Moses called an “unvirtuous cycle.” As former federal employees re-enter the job market, they face fewer opportunities due to declining private-sector revenue streams.
Can the Job Market Absorb Federal Layoffs?
Cory Stahle, an economist for Indeed’s Hiring Lab, told Fortune that the labor market’s ability to accommodate these displaced workers remains uncertain.
“Can the labor market absorb these workers?” Stahle asked. “We’re not quite sure if it can.”
Healthcare remains one of the few bright spots, with about 16% of the federal workforce possessing health-related expertise, according to the Pew Research Center. However, many other white-collar sectors, including tech and data science, are experiencing job shortages.
Because many laid-off federal employees are highly educated, they may struggle to find new positions in a market lacking traditional knowledge-based jobs, Stahle said.
Delayed Data Masks the Full Economic Picture
One reason markets have yet to fully react to the firings is the delay in official government employment data. The Bureau of Labor Statistics reported a decrease of 10,000 federal jobs in February, but the data collection period likely ended before many layoffs took effect.
“Employers seem to be really frozen, by the uncertainty around what’s going to happen around tariffs, what’s going to happen with labor supply, immigration, then obviously, what’s going to happen with these federal workers,” Stahle said. “There’s a lot of uncertainty that’s playing in right now that we’re not fully able to quantify.”
Consumer Spending at Risk
With consumer spending making up nearly 70% of the U.S. economy, a slowdown could have significant consequences.
Callie Cox, chief market strategist at Ritholtz Wealth Management, warned in a February blog post that declining consumer spending could curb economic growth.
“The economy is indisputably made up of people and their wallets,” Cox wrote. “Disrupt our spending, and growth will sputter, no matter how worthy you think the cause of the disruption is.”
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