CBO: Tariffs Have a Visible Impact on Inflation
Phillip Swagel, director of the U.S. Congressional Budget Office (CBO), recently stated that although President Trump's tariff policy has not caused a significant increase in prices, it has indeed made U.S. inflation higher than originally predicted by the CBO.
Swagel pointed out that since January this year, the U.S. economy has generally shown a weakening trend, and inflation was expected to decrease under this pressure, but the cumulative effect of tariffs offset some of the downward pressure.
This statement differs from the views of some Wall Street analysts. They generally believe that, although the market has been cautious about price hikes caused by tariffs, significant price transmission has not yet been observed.
Long-Term Effects May Lead to Significant Deficit Reversal
Swagel further revealed that the CBO holds a positive view of the long-term impact of Trump's tariffs. According to CBO's forecast, these tariffs will improve the U.S. federal finances by about $4 trillion over the next decade, including $3.3 trillion in tariff revenue and $700 billion in debt interest savings.
He emphasized that this outcome implies a "significant reversal" in deficit trends, contrasting with widespread concerns about fiscal pressure. The CBO believes that while trade policy has increased inflation in the short term, it supports fiscal health in the long term.
Supreme Court Ruling as Key Uncertainty
The future of Trump's tariffs remains legally risky. The U.S. Supreme Court is set to hold oral arguments in early November on a lower court ruling that the President may have overstepped his authority.
Swagel said this ruling is "one of the key uncertainties in the current economy." However, the latest CBO analysis indicates that this uncertainty is expected to gradually dissipate and fully disappear by the end of 2027, allowing investment activity to return to normal.
Macroeconomic Forecasts Revised Downward
The CBO's recent economic outlook shows adjustments to the forecasts for U.S. growth and employment. The CBO expects the U.S. economy to grow by 1.4% in 2025, down from the 1.9% forecast at the beginning of the year.
In terms of inflation, measured by the Fed's preferred PCE price index, the 2025 inflation rate may reach 3.1%, higher than the previous forecast of 2.2%. The labor market also shows pressure, with the unemployment rate expected to rise to 4.5% by the end of the year, higher than the previous estimate of 4.3%.
These figures indicate that the U.S. economy is experiencing a situation where growth is slowing and price pressures exist simultaneously, with tariffs becoming a key variable in this dynamic.
Market Interpretation and Risk Warning
Market participants believe that the CBO's perspective offers a new angle: while tariffs disrupt prices in the short term, they may heal fiscal deficits in the long run. However, achieving this prospect still depends on court rulings and the responses of trade partners.
Analysts caution that when interpreting the CBO's expectations, investors should fully consider macroeconomic risks and policy uncertainty. If the tariff policy faces legal challenges or a new round of global supply chain disruptions occurs, its impact on inflation and finances may deviate from current forecasts.
