Statement

News from EPI Federal funding freeze risks throwing the U.S. economy into chaos

The White House Office of Management and Budget (OMB) has issued a memo blocking the disbursement of all federal grants and loans as of today. This sweeping order was originally interpreted to have an immediate impact on more than 2,600 federal programs ranging from funding for apprenticeship and job training programs to scientific research grants, causing widespread chaos and confusion.

OMB’s hastily issued follow-up guidance appears to attempt to walk back or explain away the scope of the initial announcement, and names several programs—including Medicaid—that should not be affected by this freeze. OMB also appears to want to assure all agencies that the pause will merely be a brief and timely review period, likely because they realize the chaos the initial directive has caused. The follow-up guidance reiterates that funding should only be impacted if a program’s functions have implications under one of seven sweeping executive orders issued by President Trump last week, which expressed aims of ending use of federal dollars to promote “Marxist equity, transgenderism, and green new deal social engineering policies.”

It is hardly any wonder that this mishmash of bigoted and nonsensical policy aims led to widespread confusion. The executive orders themselves are so broad in their aims that it’s easy to see how many federal programs—particularly those that may affect environmental research, women’s health, or be geared toward supporting low-income families—could all come under political scrutiny and threat under this review if they happen to dare naming “improving racial and gender equity” or “environmental justice” as a program goal.

The very near-term economic impacts of a federal grant freeze are still unknown but will likely be severe, showing the extent of the Trump administration’s recklessness actions. They have also thrown state and local governments, nonprofit organizations, and service providers into disarray as they attempt to figure out what the impact on their programs will be after today. Even if the “pause” on disbursing the funds proves short, critical services covered by these funds still need to be provided around the clock all across the country. Rural hospitals, tribal governments, public schools serving primarily low-income students, research laboratories, nursing homes, and more all rely heavily on federal funding streams. Paused payments or frozen grants mean that services are not being provided, supplies are not being purchased, and people are not being paid—and not just public-sector employees, but also private-sector employees whose jobs are made possible by federal purchasing power.

In the long run, let’s suppose that each program needs to undergo a lengthy and politically fraught review process outlined in the White House memo, and the “pause” becomes a freeze that stretches on for more than just a few days, or expands to encompass more programs. In that case, the economic consequences of a federal funding freeze of this magnitude would be catastrophic and guaranteed to cause a steep recession. The federal government gives $1 trillion in grants to state and local governments alone, for everything from physical infrastructure and public safety to health and social services. Removing this money from the economy would represent a huge economic shock.

A long-term freeze on spending would also fatally compromise the valuable work done only by the federal government and heavily relied upon by the private sector. For example, will National Institutes of Health (NIH) medical trials aimed at detecting and thwarting the next pandemic or providing cures for cancer be defunded? Will economic data collection—which provides the backbone of private-sector investment plans—no longer happen? Will there be a rolling series of shutdowns of college and universities that will thwart the upward ambitions of the current generation of young Americans?

Nothing about this policy is aimed at improving people’s lives, or “aligning spending and action with the will of the American people,” as the memo from OMB Acting Secretary Matthew Vaeth claims. It’s a bizarre ideological witch hunt that the vast majority of Americans just couldn’t care less about. However, average Americans will quickly care about the impacts if their local public services are fatally compromised as collateral damage for the Trump administration’s political agenda.


See more work by Samantha Sanders and Josh Bivens