President Trump Enacts Sweeping Fiscal Changes with New Law

President Donald Trump signed the "One Big Beautiful Bill Act" (OBBBA) into law on July 4, 2025, introducing sweeping fiscal changes projected to increase the U.S. budget deficit by approximately $3.4 trillion over the next decade. In response, the Federal Reserve is evaluating potential adjustments to monetary policy to address possible inflationary pressures resulting from this substantial fiscal stimulus.

The OBBBA encompasses a wide array of provisions affecting taxation, healthcare, defense spending, and social welfare programs. Key elements include an increase in the Child Tax Credit from $2,000 to $2,200 per qualifying child under 17, indexed for inflation starting in 2026. Additionally, the legislation introduces "Trump Accounts," savings accounts for children's education, homeownership, and entrepreneurial goals, automatically opened and funded by taxpayer dollars. A temporary additional deduction of $6,000 per individual aged 65 or older ($12,000 for couples) is also established, effective from the 2025 tax year through 2028.

On the healthcare front, the bill includes nearly $1 trillion in Medicaid cuts, potentially resulting in 11.8 million Americans losing health insurance coverage. The American Hospital Association (AHA) expressed deep disappointment, stating that these cuts will "result in irreparable harm to our health care system, reducing access to care for all Americans." The legislation also imposes work requirements for Supplemental Nutrition Assistance Program (SNAP) recipients and shifts some program costs to states.

Defense and border security receive significant funding increases under the OBBBA. An additional $150 billion is allocated to defense, including $29 billion for shipbuilding and $25 billion for a proposed "Golden Dome" missile defense system. Funding for Immigration and Customs Enforcement (ICE) is set to increase from $10 billion to over $100 billion by 2029, aiming to enhance border security and deportation capabilities.

In light of the substantial fiscal stimulus introduced by the OBBBA, the Federal Reserve is evaluating potential adjustments to monetary policy to address possible inflationary pressures. The upcoming Federal Open Market Committee (FOMC) meeting will be the first since the enactment of the OBBBA, and discussions are expected to focus on whether to raise interest rates to counteract these effects. The Federal Reserve's approach to this situation will be crucial in determining the balance between supporting economic growth and maintaining price stability.

The OBBBA's scale and scope draw comparisons to previous significant fiscal policies, such as the Tax Cuts and Jobs Act of 2017. However, the current legislation's combination of tax cuts, increased defense spending, and social program reductions presents a unique fiscal approach with far-reaching implications.

As the nation navigates these changes, the interplay between fiscal policy, monetary policy, and social welfare will be critical areas for ongoing analysis and public discourse.