March 2025 Commentary: The Potential Impact of DOGE

By Daniel McGarvey, CFA, Senior Portfolio Analyst, on behalf of Stonebridge Financial Group advisors

Along with tariff policy, one of the new administration’s most prominent and controversial initiatives has been the creation of the Department of Government Efficiency (DOGE), which aims to target federal waste through cost cutting. The concept

behind it is one which most Americans are likely to agree with, and it is undeniable that our large long-term deficit will not be able to come down without significant spending cuts. However, the breakneck approach of DOGE has caused significant discomfort in the government and affiliated industries, as evidenced by the poor performance of government contractor stocks and the up-trending jobless claims in Washington, D.C. (see chart below).

Although relatively small at this point, it is worth watching whether this unemployment trend spreads to the point where it impacts consumption and economic growth. At a macro level, the benefit of shrinking government spending needs to outweigh the cost of lost jobs, which should be possible if done effectively.

As of the end of February, DOGE estimates its savings at $105 billion, which, if accurate, would amount to around 1.5% of our $7 trillion spending budget (see chart below). The estimated savings should continue to increase, but it could take a long time to make a significant dent in our massive deficit without congressional budget reform, and Democrats are unlikely to approve a government funding bill that does not subject DOGE to restrictions.

Additionally, Republicans’ goals are complicated by their desire to cut the deficit while also passing tax cuts. To truly tackle our deficit, spending would need to be reduced while revenues are increased, or at least the spending cuts would need to outweigh revenue cuts. Even with the possibility of increased tariff revenues, this goal is daunting when so much spending is tied to entitlements and the interest on our debt is being restruck at higher rates (see chart below).

Of course, DOGE could very well “pull it off” by slashing waste in a way that benefits Americans more than it harms them. We hope that is the case. Meaningful, large-scale reform will likely require the efforts of more than just DOGE, though, and within DOGE it would be encouraging to see that the consequences of savings measures are being considered.

The S&P 500 returned -1.7% in February as markets continued to digest the flurry of policy changes and shifting foreign relations. The Bloomberg US Aggregate Bond Index returned 2.1% as the 10-Year Treasury Rate dropped to 4.24%.

Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.

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Daniel is a Senior Portfolio Analyst at Stonebridge Financial Group and works on portfolio analysis and other related tasks. When away from the office, Daniel spends his time playing guitar, reading, and exploring the outdoors.