Richmond Fed warns of economic challenges from federal layoffs

The Federal Reserve Bank of Richmond told Virginia lawmakers Wednesday that D.C., Maryland and Virginia could see significant economic challenges in the near future amid the mass federal layoffs.

The Fed made a presentation to a special subcommittee that was created to address any economic fallout from federal layoffs and spending cuts.

Since January, more than 120,000 federal workers have been fired as part of President Donald Trump and Elon Musk’s plan to downsize the federal workforce.

“This is gonna be catastrophic to our economy, and we have to figure out a way to replace it or a way to make up for it,” said Virginia State Sen. Scott Surovell.

Unemployment claims are up, but the accuracy of the data is unclear because unemployment claims are counted in the state of a person’s former employment, not their state of residence. For example, a Virginia resident who works in D.C. would have their unemployment claim counted in the District, not Virginia.

A new administration always leads to turnover, but the Fed said this time is different.

“D.C., Maryland, and Virginia are seeing more unemployment claims filed for federal government workers than they did in say 2020 January or 2016 January,” said Sonya Waddell, vice president and economist at the Fed.

The Fed conducted a survey of chief financial officers in businesses across the state and found optimism about the economy and their own businesses declined.

The CFOs listed their top concerns. Trade and tariffs made the top of the list, Waddell said.

Surovell said there are other troubling signs including a recent drop in sales tax revenue, indicating consumers aren’t spending as much.

“I don’t think we’ve seen a lot of this data play out yet,” Surovell said. “Even the 75,000 people that took the early retirement, they got paid out, but they’re probably getting ready to sell their house or whatever. We haven’t seen the full impact of all this stuff in Northern Virginia.”

Fairfax, Prince William, Arlington and Loudoun counties are home to the highest concentration of civil federal employees in the state. Stafford County could be particularly vulnerable because about one out of four jobholders work for the federal government.

The special subcommittee will hold additional meetings and work sessions to find ways to support workers and critical services and projects across Virginia without decreasing the state’s revenue.