The Trump administration has directed agencies to suspend all federal grants and loans starting at close of business today.

Why it matters: The new administration is showing signs — in its unilateral actions and legislative strategy — that it is more serious about fiscal austerity than the last time President Trump was in office.

• That implies a very different fiscal policy for Trump 2.0, with pain ahead for federal funding recipients as well as downward pressure on inflation and interest rates.

Driving the news: The new directive is an audacious and legally dubious move, instructing agencies to "temporarily pause all activities related to obligation or disbursement of all Federal financial assistance, and other relevant agency activities" that could be affected by executive orders.

• Payments to individuals — including Social Security and Medicare — are exempted from the order.
• There is great uncertainty about how widely it will be applied, how long it will last, and whether it will be upheld by the courts. Legal scholars are skeptical.
• In effect, the administration is seeking to suspend billions in spending that was passed by both houses of Congress and signed by President Biden with a two-page memo from the acting director of the Office of Management and Budget.

Yes, but: Whatever happens next with this specific order, it's only the latest sign that this administration is dead-set on slashing federal outlays — and willing to tolerate any political backlash it may cause.

• Congressional Republicans are looking to spending cuts, particularly for Medicaid and Biden-era climate initiatives, to help offset the fiscal cost of tax-cutting plans.
• Treasury Secretary Scott Bessent has set a goal of a budget deficit of 3% of GDP, achieved through spending reductions. That implies hundreds of billions of dollars a year in cutbacks.
• Elon Musk's Department of Government Efficiency has pivoted its emphasis somewhat in recent weeks toward internal operations of agencies, but it has set reducing spending as a major goal.

Flashback: In Trump's previous term, his administration offered big cutbacks in its budget proposals — but didn't achieve them in practice.

• Discretionary federal spending was 13% higher in 2019, on the eve of the pandemic, than it was in 2016 before he took office. It was little changed as a percentage of GDP.

Between the lines: While meaningful spending reductions would be good for the government's medium-term fiscal trajectory, they would also impede growth in the near term.

• It would, all else equal, exert a downward tug on inflation and justify lower interest rates from the Fed to offset that drag.
• Kevin Warsh, a potential Fed chair nominee, recently accused Fed officials of "cherry-picking" by fretting about the inflationary impact of tariffs while failing to factor in the possibility that spending cuts would "materially reduce inflationary pressures."

Consumer confidence soared after the election. Just two months later, the Trump bump has been wiped out.

Why it matters: A gauge of consumer confidence measured by business research group The Conference Board fell for the second consecutive month, though the drop in December was not as steep as originally estimated.

• The index level was 104 this month — down from the most recent peak of 112 in November. The survey cut-off date was Jan. 20, the day of the presidential inauguration.
• The results are in line with the University of Michigan's consumer sentiment survey in January, which declined for the first time in six months.

What they're saying: Perhaps the most worrying finding — at least, in the view of economic policymakers — is the jump in consumer inflation expectations. That move is in part because of Trump's tariff threats.

Between the lines: Average 12-month inflation expectations rose to 5.3%, up 0.2 percentage from December's reading.

• That jump was mirrored in the University of Michigan sentiment gauge, with year-ahead inflation expectations hitting the highest since May 2024.
• "Concerns over the future trajectory of inflation were visible throughout the interviews and were tied to beliefs about anticipated policies like tariffs," the University of Michigan said in a release.
• "Consumers continued to spontaneously express motives for buying-in-advance to avoid future price increases, and robust auto and retail sales data suggest that consumers are indeed acting on these views," that report says.

The big picture: The Conference Board reported a downshift in expectations for job opportunities. While that looked to be the case last month, the new data shows views about the labor market declining for the first time since September.

• "The return of pessimism about future employment prospects seen in December was confirmed in January," Dana Peterson, an economist at the Conference Board, said in a statement.

The intrigue: Hiring data points to a resilient labor market, continuing a disconnect between indicators and what consumers say is at the heart of their lackluster sentiment.