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Donald Trump is back with his "Make America Great Again" slogan. The 2016 election campaign resonated with voters in the November 2024 election. Just like last time, President-Elect Donald Trump is back with his tough trade policies and spending cuts in the government workforce. Before his swearing-in ceremony, he announced that DOGE aims to reduce federal spending by slashing excess regulations, slimming wasteful expenditures and restructuring federal agencies. But now his grand plans collide with Musk's ambitious spending cut plan. The Federal Reserve's delicate balancing act is creating a perfect storm for the US economy.
Analysts Prediction: Economic downturn worse than 2008 financial crisis.
Elon Musk’s “Department of Government Efficiency” DOGE is aiming to cut $2 trillion in federal spending. What is Elon targeting:
Saving maintenance costs of over $100 billion annually of unused federal office spaces.
Stopping all fraudulent government spending, saving $50 billion per year.
Blockchain proposal and other inefficiency programs.
This could potentially cut $2 trillion from the government's role in the economy. Slashing $1.8 trillion could cut GDP by 9.4%, escalating the recession risk far worse than the 2008 financial crisis.
Donald Trump, in his previous administration, preferred a weaker dollar, arguing that a strong dollar made US exports more expensive and hurt American manufacturers.
But this time, he insists on a strong dollar, and his pursuit of higher tariffs is aimed at trade deals that lower inflation and global dollar dominance.
A strong dollar makes imports cheap, reducing the price of foreign products like oil, raw materials and consumer goods.
A strong dollar reinforces US financial dominance and its value as the reserve currency. The rise of BRICS and free trade agreements (FTAs) between nations have led to discussions about alternative reserve currencies besides the US dollar.
The push for a strong dollar might also reduce demand for US-manufactured goods, hurting businesses. The higher interest rate will make borrowing money (loans, mortgages and investments) for businesses and consumers more difficult.
A higher tariff push also risks retaliation and an escalating global trade war, dampening consumer sentiment.
The Federal Reserve adjusts policy to balance the impact of government spending and taxation on the economy.
It manages interest rates and money supply to support economic growth while keeping inflation under check.
Their balancing act:
1. To balance government cuts or high tariffs, the feds might lower interest rates or print more money to prevent a recession.
2. But if the government decides to increase spending or sell assets, it could boost the economy but cause inflation. Feds should not raise the interest rates too much, which could slow down the growth unnecessarily.
Policymakers should be aware that their decision could plunge the US economy into a recession not seen since the 1930s. It is not the first time the US government is facing this economic plight.
But each time, the risk of recession just grows bigger than the last time.
The coming months will decide the fate of the US economy—whether it succumbs to growing recession fears or enters a new chapter.
