What's Happening?
The Office of Budget, Balance, and Bureaucratic Accountability (OBBBA) has launched a significant 'operational efficiency' review, marking the start of a major deregulation effort known as the 'Great Regulatory Purge.' This initiative, authorized by the One Big Beautiful Bill Act signed into law in July 2025, aims to dismantle the 'administrative state' by conducting cost-benefit analyses across federal agencies and reducing personnel. The deregulation is particularly impacting the energy and technology sectors, as federal oversight is reduced, leading to a shift in investment strategies. The OBBBA, in collaboration with the Department of Government Efficiency, has already canceled billions in federal contracts and eliminated numerous roles
within agencies like the Consumer Financial Protection Bureau and the EPA.
Why It's Important?
This deregulation represents a fundamental shift in U.S. governance, moving towards a high-growth, low-regulation environment. The initiative is expected to benefit traditional energy and defense sectors, as seen with companies like ExxonMobil and Lockheed Martin experiencing stock surges. However, it poses challenges for the 'New Economy' sectors, such as Big Tech, which are facing a valuation reset due to the withdrawal of federal subsidies. The broader implications include a potential increase in domestic production and a shift in international trade dynamics, particularly with the severing of Chinese components from U.S. supply chains.
What's Next?
The market is expected to remain volatile as companies adjust to the new regulatory environment. The OBBBA's next sector review may target healthcare and pharmaceuticals, potentially leading to further industry shifts. Investors are advised to monitor the implementation of new labor laws and FEOC rules, which will influence corporate margins. The Federal Reserve's high interest rates to combat inflation add another layer of complexity, potentially affecting the expansion efforts encouraged by deregulation.
Beyond the Headlines
The deregulation effort aligns with a global trend towards 'industrial nationalism' and fiscal retrenchment. By reducing bureaucratic oversight, the U.S. aims to create an economic environment reminiscent of the pre-Great Depression era. This move could lead to systemic challenges in consumer protection and environmental safety, raising ethical and legal concerns. The long-term impact on international relations and domestic economic stability remains uncertain, as the U.S. navigates this significant policy shift.
