Elon Musk’s DOGE could hurt the U.S. economy, Bank of America says

Elon Musk’s DOGE may depress government spending gradually, along with growth in jobs and the economy, Bank of America (BAC+3.20%) said.

Economists Stephen Juneau and Shruti Mishra expect the U.S. government to reduce its employment by 200,000 people by the end of the fiscal year, which when added to job cuts at government contractors, creates an upside risk to the bank’s year-end unemployment target of 4.2%.

While the effects of actions by the Department of Government Efficiency are limited so far, a drag should accumulate over time, Juneau and Mishra wrote in a report Friday. Reductions in spending may also add up gradually: While the DOGE website claims $66 billion in savings, it lacks some transparency and may be overstating the results, BofA said.

The researchers estimate that the government has reduced its headcount by about 100,000, cutting costs by about $20 billion annually over time. As many dismissed employees will be paid through the end of the fiscal year, actual savings won’t begin until October.

Overall, the effects of DOGE’s activity so far is modest, with the effective elimination of USAID the most visible evidence of reduced outlays, the economists wrote. While this probably won’t effect near-term economic data and growth, they’ll continue to monitor the data.

Any truly significant cuts in federal spending will still probably need to come through Congress and the budget reconciliation process, Juneau and Mishra wrote.