U.S. CBO sharply lowers this year's U.S. economic growth forecast, expects higher unemployment and surging inflation.

```

After considering factors such as President Trump’s tax cuts, tariffs, and a decrease in net immigration, the U.S. Congressional Budget Office (CBO) now forecasts that inflation and unemployment in the U.S. will rise this year, while economic growth will slow. The latest CBO forecast extends through 2028.

The nonpartisan agency’s economic outlook released on Friday shows the U.S. economy will grow by 1.4% in 2025, down from the 1.9% forecast in January; in comparison, the growth rate for 2024 was 2.5%. Measured by the Federal Reserve’s preferred inflation gauge, the inflation rate will rise to 3.1%, nearly a full percentage point higher than the previous 2.2% forecast. The report also shows unemployment will rise to a peak of 4.5% by the end of this year, higher than the previous forecast of 4.3%.

The CBO attributes the sharp downgrade in its economic growth forecast to slower consumer spending caused by new tariffs and reduced immigration, which in turn will further affect consumption. The report states that these tariffs “raise the prices of consumer goods and services, thereby weakening household purchasing power; they also increase business costs for firms that use imported goods or compete with imports as production inputs.”

The CBO’s economic outlook is designed to set expectations for the economy and help policymakers in Congress and the executive branch make decisions. The CBO does not forecast a downturn or recession; its estimates typically revert to expected averages over time.

Analysts point out that the outlook published by the CBO on Friday shows the extent to which Trump’s policy choices have changed the trajectory of the U.S. economy, indicating that these choices have suppressed growth in the short term while promised positive effects such as more jobs and lower budget deficits have yet to materialize.

Private-sector economists have similar forecasts to those of the CBO, expecting U.S. growth to slow in 2025 before rebounding slightly the following year.

However, the CBO expects U.S. growth to pick up next year, thanks to Trump’s new tax law, with GDP reaching 2.2%, higher than its January forecast of 1.8%. Afterwards, U.S. GDP is expected to fall back to 1.8% in 2027 and 2028.

The CBO forecasts that U.S. unemployment will decrease next year, with the latest estimate at 4.2%, slightly lower than the previous forecast of 4.4%. Unemployment is projected to stabilize at 4.4% in 2027 and 2028.

The CBO expects inflation to moderate in 2026 as the impact of this year’s higher tariffs lessens. Next year’s inflation rate is projected to drop to 2.4%, still higher than the previously expected 2.1%, then stabilize at 2% for the following two years.

In another report released earlier this week, the CBO sharply reduced its outlook for U.S. immigration over the next few years as a result of Trump’s related policies. The CBO predicts that Trump’s mass deportation plan and other tough immigration measures will result in about 320,000 people being expelled from the U.S. over the next decade.

The CBO has also lowered its forecast for population growth, mainly because Americans are expected to have fewer children. The CBO projects that, by 2031, when annual deaths exceed births, the U.S. will need immigration to prevent population decline. By 2035, the CBO’s forecast for the U.S. population is 4.5 million lower than its January forecast.

Previous data shows that U.S. job growth has already slowed significantly this year, with only an average of 29,000 positions added per month in the past three months. With economic uncertainty heightened by Trump’s tariffs, businesses have become more cautious in hiring new workers. As employers slow down hiring, it becomes harder for the unemployed to find new jobs, unemployment rises, and the number of jobless claims is also trending upward.

So far this year, Federal Reserve officials have chosen to keep interest rates high, as inflation remains above the 2% target and the full impact of tariffs has yet to be felt. But policymakers have begun to worry about a weakening labor market. Investors are increasingly betting that a series of rate cuts will happen later this year, with the Fed’s FOMC meeting next week expected to kick off the first cut of the year. The Fed will also release updated economic forecasts at next week’s meeting.

The CBO typically issues two updates each year on the federal budget, deficits, debt, and the economic outlook over the next decade. The last report was published in January of this year, before Trump’s inauguration; the next update will be released early next year.

Risk Warning and DisclaimerMarkets are risky and investment requires caution. This article does not constitute personal investment advice and does not take into account individuals’ specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article are appropriate for their particular circumstances. Investing accordingly is at your own risk. ```