Executive Summary
- CBO Director Phillip Swagel stated the U.S. economy is weakening, with President Trump’s tariffs pushing inflation higher than initially projected.
- The CBO projects President Trump’s tariffs will reduce the U.S. budget deficit by $4 trillion over the next decade, comprising $3.3 trillion in increased revenue and $700 billion in averted debt costs.
- The Supreme Court’s tariff case is a key economic uncertainty, though the CBO expects broader policy uncertainty effects to dissipate by the end of 2027.
The Story So Far
- The Congressional Budget Office is currently assessing the long-term economic impact of President Trump’s tariffs, which are a significant policy initiative. These tariffs are now being linked to signs of a weakening U.S. economy and higher inflation than initially projected, even as they are forecast to significantly reduce the budget deficit over the next decade, all while facing ongoing policy uncertainty, including a pending Supreme Court case.
Why This Matters
- The CBO’s assessment reveals a complex economic impact from President Trump’s tariffs, indicating they are contributing to a weakening U.S. economy and pushing inflation higher than anticipated. However, these same levies are also projected to significantly reduce the U.S. budget deficit by $4 trillion over the next decade, presenting a trade-off between short-term economic strain and long-term fiscal improvement.
Who Thinks What?
- CBO Director Phillip Swagel stated that President Trump’s tariffs have pushed inflation higher than initially projected and that the U.S. economy is showing signs of weakening, but also projected these levies would reduce the U.S. budget deficit by $4 trillion over the next decade.
- Many Wall Street analysts have braced for tariff-driven price hikes but have yet to see them broadly materialize, suggesting a divergence from the CBO’s assessment of inflation’s current impact.
Congressional Budget Office (CBO) Director Phillip Swagel stated on Monday that the U.S. economy is exhibiting signs of weakening, with President Trump’s tariffs appearing to have pushed inflation higher than CBO analysts initially projected. Swagel also revealed the CBO’s long-term view, expecting these levies to reduce the U.S. budget deficit by $4 trillion over the next decade.
Economic Outlook and Inflation
Swagel’s assessment suggests a divergence from some Wall Street analysts, many of whom have braced for tariff-driven price hikes but have yet to see them broadly materialize. According to the CBO’s analysis, the economy has weakened since January, a trend that would typically be expected to exert downward pressure on inflation.
Tariffs and Budget Deficit
The CBO director detailed the projected $4 trillion reduction in the budget deficit over the coming decade. This figure comprises $3.3 trillion in increased revenue directly from the tariffs and an additional $700 billion from averted debt costs. Swagel characterized this potential outcome as a “big reversal” for the nation’s deficit trajectory.
Policy Uncertainty
Swagel identified the outcome of the Supreme Court’s tariff case as “one of the key uncertainties in the economy.” However, the CBO’s latest report indicates that the broader effects of policy uncertainty are likely to dissipate over time, with their impact expected to disappear by the end of 2027.
