Five months that tested executive economic authority

Between December 2025 and May 2026, federal economic policy underwent more legal and political contestation than in any comparable period in recent memory. The Supreme Court invalidated the IEEPA tariffs. The Court of International Trade struck down the 10% global surcharge. The Federal Reserve cut rates and then held. The OBBBA’s largest implementation phase produced visible coverage and benefit losses across SNAP, Medicaid, and ACA marketplaces. Reconciliation 2.0 unlocked $70 billion in additional immigration-enforcement spending outside regular appropriations. The federal civil service contracted by approximately 9%.

A walking summary, organized by area.

Trade and tariffs: the cascade

The first Trump administration had used Section 232 (national security) and Section 301 (foreign unfair trade practices) tariffs at significant scale during the 2018-2020 trade war. The second Trump administration, beginning January 2025, tried something different: it invoked IEEPA — a 1977 statute generally used for sanctions against hostile foreign governments — to impose broad tariffs framed as responses to fentanyl trafficking, immigration concerns, and trade deficits.

February 20, 2026: the Supreme Court ruling. Learning Resources, Inc. v. Trump held 6-3 that IEEPA does not authorize tariffs. Chief Justice Roberts wrote the majority joined by Sotomayor, Kagan, Gorsuch, Barrett, and Jackson. Kavanaugh dissented, joined by Thomas and Alito. The decision vacated tariffs that had generated more than $200 billion in revenue.

Same day: the pivot. Trump issued EO 14388 imposing a 10% temporary import surcharge under Section 122 of the Trade Act of 1974. Section 122 permits temporary surcharges of up to 15% for up to 150 days to address balance-of-payments deficits or imminent dollar depreciation.

March 11, 2026: USTR opens Section 301 investigations. “Structural excess capacity” investigations across China, the EU, Korea, Vietnam, Taiwan, and a dozen other economies. Section 301 is the same authority used for the 2018-2020 China tariffs. Investigations are time-consuming — typically six months to a year — but produce tariffs on firmer legal footing.

April 2, 2026: 100% pharmaceutical tariffs. Section 232 tariffs on imports of patented small-molecule and biologic drugs and their active ingredients. Generics, biosimilars, and orphan drugs exempt. Effective July 31 for large companies, September 29 for others. Companies signing Most-Favored-Nation pricing agreements receive 0% rates through January 20, 2029.

May 7, 2026: the CIT ruling. US Court of International Trade ruled 2-1 that the Section 122 surcharge was not authorized. Section 122’s preconditions — a balance-of-payments emergency or imminent dollar depreciation — were not met. Relief was limited to the named plaintiffs (the State of Washington, Burlap & Barrel, and Basic Fun!); other importers face tariffs through July pending appeal.

The cumulative legal pattern: IEEPA is not a general tariff authority, Section 122 is not a substitute, and the durable tariff authorities — Section 301 and Section 232 — require longer time horizons and more specific factual showings. An administration that wants broad tariffs needs Congress.

The OBBBA implementation phase

The reconciliation bill enacted in July 2025 was the largest piece of statutory restructuring of federal entitlement, healthcare, and tax policy in roughly two decades. December 2025 through May 2026 was the period in which administrative implementation translated statutory provisions into measurable benefit and coverage changes.

SNAP. Federal restrictions on lawfully present non-citizens took effect February 1, 2026. New work requirements took effect March 1 for adults 18-64 without dependents under 14. SNAP participation declined more than 8% (over 3 million people) between July 2025 and January 2026 per USDA data. Nebraska began enforcement of the new work-reporting framework on May 1, 2026, ahead of most states’ planned summer outreach. The program had not seen this rate of caseload decline in any peacetime period in modern history.

Medicaid. The enhanced FMAP that had incentivized Medicaid expansion sunset January 1, 2026. The provider-tax rule was finalized in early February, eliminating state financing arrangements relied on by California, New York, Illinois, Michigan, Massachusetts, Ohio, and West Virginia. Stateline analysis published March 4 found that state Medicaid budgets will decline by an aggregate $665 billion. CBO estimated 11.8 million people will lose Medicaid coverage and another 3.1 million will lose marketplace coverage.

ACA marketplaces. The enhanced premium tax credits expired effective January 1, 2026. The Senate failed on December 11 to extend them, with both a Democratic three-year extension and a Republican alternative going down 51-48. The expiration is projected to roughly double average net marketplace premiums for 24 million enrollees. The House passed the Lower Health Care Premiums Act on December 18 — a Republican measure expanding HSAs and short-term limited-duration plans, criticized by AMA and patient advocates as accelerating an adverse-selection spiral. The bill faces an uncertain Senate path.

Federal student loans. The Department of Education and Treasury announced the Federal Student Assistance Partnership on March 19, beginning a phased transfer of federal student loan administration. Treasury immediately took over the $180 billion defaulted-loan portfolio. The earlier Notice of Proposed Rulemaking from late January would eliminate Graduate PLUS loans, cap Parent PLUS, and restructure repayment, with effective date July 2026.

The cumulative pattern: the largest single-period reduction in federal entitlement, healthcare, and education benefits in modern US history, with measurable effects beginning to register on the ground in early 2026.

The Federal Reserve

The FOMC produced a divided pattern.

December 10, 2025: Third rate cut of 2025, lowering the federal funds target to 3.5-3.75% on a 9-3 vote. Fed announced resumption of Treasury purchases starting with $40 billion in T-bills, ending quantitative tightening. The Summary of Economic Projections signaled only one further cut in 2026 amid still-elevated inflation and a softening labor market.

April 29, 2026: FOMC voted to maintain the federal funds target at 3.50-3.75%, with public dissent reflecting disagreement over whether stuck-above-3% inflation or a softening labor market posed the larger risk. March nonfarm payrolls came in at 178,000 with unemployment at 4.3%.

The Fed’s posture through the period was unusually contested politically. Trump-appointed Governor Stephen Miran’s preference for a 50-point cut at the December meeting, the public dissent at the April meeting, and the broader question of Fed independence under sustained executive pressure all produced operational friction without producing major policy reversal.

Reconciliation 2.0

The Senate adopted the FY26 budget resolution April 23 (50-48); the House followed April 29 (215-211). The resolution instructs the Senate Homeland Security, Senate Judiciary, and House Homeland Security and Judiciary committees to draft legislation by May 15 providing up to $70 billion in additional immigration-enforcement funding outside the regular appropriations process.

The fiscal architecture matters. Reconciliation requires only a simple Senate majority and bypasses the filibuster. The committees have substantial discretion in structuring the legislation, including whether to attach reform provisions, oversight requirements, or constraints on use of force. Whether Democratic leverage produces structural changes or simply enables ICE and CBP funding without conditions is the open question of the next several weeks.

The federal civil service contraction

Treasury formally notified staff on March 2, 2026 that the Office of Financial Research — created after 2008 to monitor systemic financial risks — was being substantially abolished. The move was part of an ongoing federal workforce reduction that has cut roughly 9% of civil servants over the prior twelve months.

OPM published a proposed rule on March 5 rewriting reduction-in-force procedures to weight recent performance appraisals heavily and strip protections from probationary employees. The rule completes substantial structural changes to federal employment law that began with Schedule F-related reclassifications in early 2025.

The cumulative effect on federal capacity — regulatory, oversight, service-delivery — is substantial. The economic effect is harder to measure but real: federal-employee compensation is a meaningful share of overall federal spending, and the contraction has produced both immediate spending reductions and longer-term capacity questions.

Housing and finance

Three notable developments.

EO 14376 (January 20). “Stopping Wall Street From Competing With Main Street Homebuyers” directs HUD to limit large institutional investors’ acquisitions of single-family homes and strengthen ownership disclosure rules in federally supported single-family programs. Enforcement mechanisms left to subsequent agency rulemaking.

Housing for the 21st Century Act (House passage February 9, 390-9). Bipartisan affordable-housing finance, oversight, and regulatory streamlining package. Senate path uncertain.

HUD’s eviction-notice rescission (March 30). The Biden-era requirement that landlords give 30 days’ notice before initiating judicial eviction proceedings against federally subsidized tenants was eliminated, drawing criticism from tenant advocates.

What the period revealed

The structural lessons of December 2025 through May 2026 are not yet fully clear, but several patterns are visible.

Federal courts substantially constrained executive economic authority during the period. The IEEPA ruling, the CIT ruling, the renewable-permitting injunction, and the third-country-deportation injunction all narrowed executive action — not by overturning specific policies, but by tightening the statutory bases on which they could be imposed.

The OBBBA implementation moved faster than the political response. SNAP and Medicaid coverage losses began registering before any legislative response could be enacted. The political mobilization visible in the May Day actions reflects the lag between the policy effects landing and the political infrastructure able to respond at scale.

Reconciliation has become the operative legislative vehicle. Annual appropriations are insufficient to advance major substantive reform. The 60-vote Senate threshold has produced sustained policy stalemate on most contested questions. Reconciliation — with its simple-majority threshold and budget-related scope — has become the preferred vehicle for major substantive legislation, including legislation that is only thinly fiscal in character.

The economic environment for the rest of 2026 will be shaped substantially by Reconciliation 2.0 (whose specific provisions are still being drafted), by the resolution of pending tariff litigation (in the Federal Circuit and Supreme Court), and by the continuing implementation effects of the OBBBA. The political and legal architecture that responds to these pressures is being built in real time.

The fights have not been resolved. They have been deferred to specific upcoming inflection points — the May 15 reconciliation drafting deadline, the July tariff effective dates, and the November 2026 midterms.