The founder of Moses Ventures made famous by the book-turned-movie “The Big Short” cautioned the market has not yet accounted for the negative economic impact of the mass cuts to government jobs carried out by the Elon Musk-championed Department of Government Efficiency.

“I think we are underestimating the impact to the economy of the cuts we’re making at the federal government, and what that might mean [for] the knock-on effects into the economy,” Moses said in a CNBC “Power Lunch” interview on Thursday. “We’re hurting the revenue side of the equation.”

“I think we are being overly optimistic [as to] how this is going to play out,” he added.

President Donald Trump’s administration has fired more than 24,000 federal workers, according to court documents, many of whom expect difficulty finding private sector jobs due to the specificity of their expertise. An additional 75,000 employees took a deferred resignation opportunity, which allowed them to receive pay and benefits through September. DOGE’s Wall of Receipts claims to have eliminated $115 billion in government spending—though the veracity of its alleged savings are under fire from experts.

The administration’s whipsaw on tariffs has sown further uncertainty in the markets, leading companies to reassess their plans. Meanwhile, Federal Reserve chair Jerome Powell has left interest rates untouched while the policy plays out. 

An ‘unvirtuous cycle’

Moses argued investors are already beginning to see disruptions in consumer confidence—which last month saw its steepest drop in four years—and will continue to hear similar trends in upcoming earnings calls. These slowdowns have yet to be priced into the market, he said.

“It’s not as simple as just, ‘We think there’s fraud, let’s cut waste, let’s cut expenses,’” Moses told Fortune. “And it’s not just about the federal workers, and it’s not just about the expenses out of those programs. It’s about the contracts with the private sector.”

The tell-tale signs of the weakening economy will be seen in small businesses and “private contractors that are doing legitimate work services that are now being forced to make decisions on their business,” Moses said.

The government spent about $759 billion on contracts in fiscal 2023, an increase of about $33 billion from the year before, with about $171.5 billion going to small businesses, according to the U.S. Government Accountability Office. Musk’s own companies receive at least $20 billion in government contracts.

DOGE’s mass cuts have already begun to jeopardize major contracts. Accenture chief executive Julie Spellman Sweet told investors Thursday its Federal Services business, representing 8% of global revenue, lost U.S. government contracts as part of DOGE’s review. The consultancy’s share price tumbled 7.3% following the announcement.

The elimination of both federal jobs and contracts creates what Moses called an “unvirtuous cycle.” As more fired federal workers look for private sector jobs, they may find fewer opportunities because of shrinking revenue streams in government contracts.

Federal workers’ luck in the job market

Indeed, beyond the purgatory of government contracts, the economy will also have to contend with tens of thousands of federal workers reentering the labor market. Many of those former government employees will encounter an environment that is stable, but has wildly different prospects based on the skillsets of those newly unemployed, Cory Stahle, an economist for Indeed’s Hiring Lab, told Fortune.

“Can the labor market absorb these workers?” Stahle said. “We’re not quite sure if it can.”

Healthcare jobs are currently abundant—good news for about 16% of the federal workforce in health-related fields, according to the Pew Research Center—but many other white-collar jobs, particularly in tech and data science, are scarce. Because many fired federal employees are educated, they may be looking for traditional knowledge worker jobs that don’t exist at the moment, Stahle said.

One of the reasons the markets may not have yet factored in the impact of the firings is the  lag in government data. While the Bureau of Labor Statistics reported about 10,000 fewer federal government jobs in February, the survey period for the report likely ended before many of the firings were carried out. 

“Employers seem to be really frozen, by the uncertainty around what’s going to happen around tariffs, what’s going to happen with labor supply, immigration, then obviously, what’s going to happen with these federal workers,” Stahle said. “There’s a lot of uncertainty that’s playing in right now that we’re not fully able to quantify.”

Should a substantive number of federal workers fail to find new jobs, spending will likely slow, a not-insignificant hit to a U.S. economy made up nearly 70% of consumer spending, Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote in a February blog post.

“The economy is indisputably made up of people and their wallets,” she said. “Disrupt our spending, and growth will sputter, no matter how worthy you think the cause of the disruption is.”