Trump’s Focus on Cutting Federal Spending: 4 Ways It Could Impact Your Wallet
Written by
Kerra Bolton
Edited by
Amber Barkley
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Nearly 30,000 federal workers were laid off or fired last month as a result of President Donald Trump’s executive order reducing government spending. It is uncertain whether that will stand — thousands of federal workers have since been reinstated and placed on leave, NBC News reported — but the economy may feel continued effects.
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While federal spending cuts directly affect a comparatively small group of people, the ripple effects could impact everything from shrinking social safety nets to an increase in consumer costs.
Now that Trump has begun to fulfill his promise to decrease federal spending, here are four ways that could impact your wallet.
Raise Consumer Costs
Federal agencies don’t just regulate industries; they help them function.
Wayne Winegarden, an economist at Pacific Research Institute, said layoffs at federal agencies, like the Food and Drug Administration (FDA), for example, could also slow down drug and medical device approvals, causing supply chain delays that may drive up healthcare costs.
Similarly, Winegarden said, if tourism-related agencies like the National Park Service undergo cuts, adjacent businesses such as hotels, restaurants and tour operators could struggle, leading to job losses and price increases for travelers.
“To prepare, it is important to not overextend financially, given that things are volatile,” Winegarden said. “You want to be in a position where you can withstand the volatility as best as you can.”
Job Cuts Hurt the Economy
Winegarden said unemployed government workers face severance payment delays, which increases their financial hardship.
“There is excessive financial instability for the people both laid off and those who are still working for the federal government,” Winegarden said. “People are uncertain whether they will have a job when they wake up in the morning. It is the uncertainty … that makes things worse than they need to be.”
In addition, Winegarden said a further economic risk is created because it may take time for laid-off government workers to get a new job before their severance runs out.
Federal government cuts could also lead to layoffs at businesses dependent on government contracts, straining social safety nets and pushing more people into financial distress, increasing the demand for unemployment benefits and credit assistance.
“The truth is that a lot of jobs, both in the public and private sectors, are tied to federal funding,” said Aaron Razon, a personal finance expert at Coupon Snake, an online coupon clearinghouse.
He explained, “Federal spending cuts could severely hurt the finances of the average American by reducing employment opportunities, costing individuals their job security.”
Shrinking Safety Net
According to the latest estimates from the Office of the Assistant Secretary for Planning and Evaluation, over 99 million Americans receive some form of government assistance. Federal spending cuts could affect benefits for everyone, including those who receive Medicare, Medicaid, food stamps and unemployment assistance.
“It could make it increasingly difficult for Americans to afford their basic needs and become stable in their finances,” Razon said. “Sectors and industries that are most likely to be affected by these cuts include healthcare, education and agriculture.”
Razon explained, “What makes this even more concerning is the fact that this cut doesn’t just threaten the well-being of individuals and communities that are dependent on these sectors alone, but also the economy and employment, as well.”
Borrowing Costs Might Rise
Poorly planned spending cuts could increase market instability, making borrowing more expensive and leading to higher interest rates on mortgages, credit cards and personal loans.
Winegarden said the “erratic” nature of the Department of Government Efficiency’s (DOGE) actions doesn’t distinguish between cutting inefficiencies and identifying areas in need of reform. The firing and rehiring of federal employees creates financial uncertainty.
“Consequently, these efforts could harm the economy and reduce the government’s efficiencies,” Winegarden said.
When thousands of workers suddenly lose income, they cut spending, which slows down local economies and weakens job security for private businesses that rely on government contracts.
Razon said federal spending cuts could slow economic activity, which may reduce inflation if demand weakens significantly.
“Inflation and interest rates may be affected due to reduced federal spending, because federal spending cuts could result in a decreased demand for goods and services,” Razon said. “This could lower borrowing costs, which inadvertently lead to lower interest rates.”
“To prepare for the potential financial impacts that may follow from the government’s budget cuts, individuals should take a proactive approach to protecting their financial security,” Razon said. “They should create a budget, make it a priority to build an emergency fund, pay off high-interest debts, and diversify their income streams.”
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