Tariffs are having a less severe effect than expected, but are still impacting prices
Inflation in the United States is running higher than expected, as new reports from the Congressional Budget Office (CBO) highlight the role of president Donald Trump’s tariffs and immigration policies in shaping the economic outlook.
On Monday, CBO director Phillip Swagel told CNBC that Trump’s tariffs have pushed inflation above earlier forecasts. “Not by a lot, but by enough to show,” Swagel said, noting that the office’s analysis shows prices running higher than anticipated.
Swagel explained that the tariffs, though designed to protect US industries, are raising costs for businesses and consumers. While the levies are projected to generate $3.3 trillion in revenue over the next decade and help cut the deficit by $4 trillion, they also contribute to near-term price hikes.
The tariffs remain in legal uncertainty as the Supreme Court prepares to hear arguments in November on whether the president exceeded his authority. “The outcome of the Supreme Court tariff case is one of the key uncertainties in the economy,” Swagel said.
Budget office warns of higher inflation and jobless rates
Last week, the CBO released updated economic projections, warning that inflation, unemployment, and GDP growth would all be worse this year than initially expected. The report attributed much of the pressure to tariffs, immigration crackdowns, and Trump’s tax and spending law, a report from Associated Press noted.
Inflation is now projected to hit 3.1% in 2025, up from the CBO’s January forecast of 2.2%. Rates are expected to ease to 2.4% in 2026 before stabilizing around 2% in 2027 and 2028.
Unemployment is forecast to climb to 4.5% this year, compared to the 4.3% previously expected, before gradually easing to 4.2% in 2026. Real GDP is projected to fall from 2.5% in 2024 to 1.4% this year, before rebounding to 2.2% in 2026.
The report also warned that tariffs “raise prices for consumer goods and services, thereby eroding the purchasing power of households; they also increase costs for businesses that use imported and import-competing inputs in production.”
The Trump administration rejected the CBO’s projections. “Americans heard similar doom-and-gloom forecasts during president Trump’s first term, when the president’s economic agenda unleashed historic job, wage, and economic growth,” White House spokesperson Kush Desai told the Associated Press.
He added that tax cuts, tariffs, deregulation, and expanded energy production are “set to deliver—and prove the forecasters wrong—again.”
Outlook
The CBO expects some stabilization in the years ahead, with inflation easing and GDP growth regaining momentum. But the near-term picture remains challenging, with households facing higher prices and businesses grappling with labor shortages tied to immigration enforcement.
“The effects of policy uncertainty dissipate over time and disappear by the end of 2027, returning investment to what it would have been without the uncertainty in trade policy,” according to the CBO’s latest analysis.
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