Economist warns of growing economic threats due to policy turmoil
- Economic indicators like job creation and consumer spending remain strong, but consumer confidence has unexpectedly declined.
- The potential for job cuts led by the Department of Government Efficiency raises concerns of significant layoffs nationwide.
- Increased uncertainty from political actions poses risks to capital expenditure and hiring, leading to worrying forecasts for markets.
In the United States, February 24, 2025, economist Torsten Slok expressed concerns over increasing downside risks to the economy and stock markets. Despite the overarching strength in several economic indicators such as job creation and consumer spending, a drop in consumer confidence alongside fears of rising inflation has surfaced, suggesting that the economy could face challenges soon. The chief economist at Apollo Academy linked these worries to political instabilities stemming from the actions and policies of President Donald Trump and entrepreneur Elon Musk, who are both advocating for significant reductions in federal employment through layoffs. Slok specifically highlighted how the Department of Government Efficiency, led by Musk and utilized by Trump, could lead to substantial job cuts. Should the anticipated reduction of 300,000 positions occur, he noted that second-order effects could result in up to 1 million additional layoffs across the nation, worsening unemployment claims that have already intensified in the Washington, D.C. area. Claims in the district have notably increased since Trump's inauguration, exacerbating job market anxieties. Alongside these employment concerns, the political environment has become increasingly uncertain, inflating the Global Economic Policy Uncertainty Index, which has reached a historic peak in the context of data dating back to 1997. The volatility in governmental policy, including Trump's threats of tariffs and tensions with Ukraine, has compounded this uncertainty. Within this climate, Slok reflected on how elevated policy uncertainty could negatively impact investment and hiring decisions, potentially prolonging economic difficulties. Despite solid metrics from the Atlanta Federal Reserve indicating a continuing GDP growth, the overall trends signal potential turbulence ahead. Consumer sentiment has faltered, with recent surveys indicating not only a decline but also a heightened expectation regarding inflation over the coming years. Slok concluded that while the economic data remains robust at present, the increasing risks related to policy decisions and employment instability could have serious implications for both the economy and financial markets soon.