Trump's Policies Will Add $1.4 Trillion to Deficit Over 10 Years: CBO

A highly combative Attorney General Pam Bondi clashed with Democrats on Wednesday during an oversight hearing of the House Judiciary Committee. Bondi repeatedly hurled insults at lawmakers as they pressed her about topics including the politicization of the Justice Department, its handling of files in the case of Jeffrey Epstein and the shootings of Renee Good and Alex Pretti in Minneapolis. As she brawled with Democrats and dodged their questions, Bondi defended President Trump and his policies, aided by Republicans who praised the DOJ's actions and a drop in violent crime over the past year. The fireworks were extraordinary, but it's not clear if the American public learned all that much from Bondi's nearly five hours of testimony.

Here's what else is happening.

Trump's Policies Will Add $1.4 Trillion to Deficit Over 10 Years: CBO

The Congressional Budget Office warned Wednesday about the nation's fiscal trajectory as it raised its projection for the 2026 deficit to $1.9 trillion and said that the cumulative deficit from 2026 through 2035 would be $1.4 trillion higher than forecast in January 2025, thanks largely to a combination of policies enacted by President Trump and Republicans.

Relative to the size of the economy, the deficit is projected to grow from 5.8% to 6.7%, with cumulative deficits totaling $24.4 trillion from 2027 through 2036. The large annual deficits are projected to raise federal debt held by the public from 101% of GDP this year to 120% in 2036, topping the previous high, 106%, by the end of 2030.

The Trump effect: In a new set of projections for the budget and economy over the coming decade, CBO said that the "One Big Beautiful Bill" domestic policy package signed into law by Trump last July will increase deficits by $4.7 trillion, propelling annual deficits to reach $3.1 trillion by 2036. The new law extended the party's 2017 tax cuts and added new breaks on top of those.

CBO said that the Trump administration's immigration policies would add another $500 billion to the deficit. On the other side of the ledger, Trump's higher tariffs are projected to reduce deficits by $3 trillion, though that is based on the somewhat shaky assumption that the tariff rates in place as of November 20, 2025, will continue unchanged. These higher tariffs are expected to also keep inflation slightly higher than it had been in last year's forecast.

"Revenues are roughly stable in relation to the size of the economy, rising from 17.5 percent of GDP in 2026 to 17.8 percent in 2036," CBO Director Phill Swagel wrote in a statement about the latest report. "Outlays increase from 23.3 percent of GDP to 24.4 percent of GDP over the next decade as spending on Social Security, Medicare, and interest payments grows faster than output."

Rising interest costs: The budget scorekeeper also noted that rising net interest costs will drive much of the growth in deficits, climbing from $1 trillion this year (3.3% of GDP) to $2.1 trillion in 2036 (4.6% of GDP). The deficit excluding those costs - known as the primary deficit - is expected to be 2.6% of GDP this year and 2.1% by 2036.

A short-lived boost: The CBO report also projects the Republican tax law to help juice growth somewhat in the near term, from an estimated 1.9% rise in inflation-adjusted GDP for 2025 to a 2.2% growth rate for 2026, four-tenths of a percent higher than it projected in January last year. But growth is then projected to moderate to 1.8% for 2027 and 2028. Interest rates on 10-year Treasury bills are expected to rise from an average of 4.1% this year to 4.3% for the next couple of years and then 4.4% from 2031 through 2036.

"We expect the Federal Reserve to remain independent, to fulfill its mission, to meet its target," Swagel told reporters at a briefing Wednesday. "All of that is built into our forecasts, into our projections. But we're cognizant of the potential if things go in the other direction, the potential for higher interest rates, and then the impact on the economy and the budget."

January deficit down from last year: A separate monthly report from the Treasury Department said that the deficit for January was $95 billion, down 26% (or $34 billion) from last year. Receipts for the month totaled $560 billion, up 9% year over year, while outlays rose 2% ($13 billion) to $655 billion.

The deficit for the first four months of the fiscal year that started in October was $697 billion, down $143 billion, or 17%, from the prior year.

The bottom line: The fiscal outlook has worsened, in large part due to Trump's policies. "There are no surprises here or bright spots of encouraging news: Our nation's deficits, debt, interest payments and trust funds are all in terrible shape," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

Six Republicans Defy Trump as House Votes to Block Canada Tariffs

Six Republicans joined with House Democrats Wednesday to approve a measure that would effectively repeal the tariffs President Trump has placed on Canadian imports.

The 219-211 vote comes after Speaker Mike Johnson failed on Monday night to pass a rule that would prevent the House from voting on legislation critical of Trump's tariffs through July.

The House measure, which now moves to the Senate, would end the state of emergency declared by Trump to justify his imposition of tariffs on Canadian goods. In early 2025, Trump claimed there is a "public health crisis in the United States" as a result of illegal drugs coming into the country from Canada, but many security experts have rejected that claim.

The six Republicans supporting the measure were Reps. Don Bacon of Nebraska, Brian Fitzpatrick of Pennsylvania, Jeff Hurd of Colorado, Kevin Kiley of California, Thomas Massie of Kentucky and Dan Newhouse of Washington. Their support came even as Trump threatened anyone who challenged him. "Any Republican, in the House or the Senate, that votes against TARIFFS will seriously suffer the consequences come Election time," Trump wrote on his social media platform.

Rep. Gregory Meeks of New York, the senior Democrat on the House Foreign Affairs Committee who wrote the resolution, said the measure was driven by concerns about the way that Trump's tariffs were raising costs for American producers and consumers. "Today's vote is simple, very simple," Meeks said. "Will you vote to lower the cost of living for the American family or will you keep prices high out of loyalty to one person - Donald J. Trump?"

The vote will likely be a symbolic one. Even if the measure passes the Senate, Trump would almost certainly veto it, and it's unlikely Congress could muster the two-thirds majority required to override a presidential veto.

Job Growth Starts 2026 Strong After Feeble 2025

The U.S. labor market rebounded in January as employers expanded payrolls by 130,000 and the unemployment rate edged lower to 4.3%, the Bureau of Labor Statistics said Wednesday in a report delayed by last week's brief government shutdown. The better-than-expected results suggest that the labor market is stabilizing after months of uncertainty driven by President Trump's tariff war on trading partners around the world.

At the same time, hiring continues to be concentrated in just a few areas, with healthcare accounting for 60% of January's net gain as employers in the sector hired about 82,000 workers. Social assistance added 42,000. Employment in construction grew by 33,000, which analysts attributed largely to the ongoing buildout of artificial intelligence infrastructure. Other key sectors saw job losses, including financial services (down 22,000) and federal government (down 34,000). The trade, transportation and utilities sectors shed a combined 9,000 jobs.

Heather Long, chief economist at Navy Federal Credit Union, said in a note that the surprising gains in healthcare and social assistance were enough to stabilize the job market and lower the unemployment rate slightly. "This is still a largely frozen job market, but it is stabilizing," she wrote. "That's an encouraging sign to start the year, especially after the hiring recession in 2025."

In another encouraging sign, the labor force participation rate for prime-age workers (25 to 54) rose to 84.1% in January, the highest since 2001. Hours worked per week edged up by 0.1 hours, and average wage growth over a year's time came in at 3.7%, beating inflation.

A huge revision for last year: Looking back at 2025, the report includes a significant downward revision to hiring, showing that only 181,000 jobs were added during the whole year, averaging just 15,000 per month. "2025 was a hiring recession," Long wrote. "We already knew that. Today's data reinforced just how bad it was."

A final revision to the data covering March 2024 to March 2025 showed that 898,000 fewer jobs were created than initially reported, roughly matching analyst expectations.

On a year-over-year basis, the unemployment rate in January 2026 is higher than in January 2025, and there are more people unemployed (7.4 million in January 2026 vs. 6.9 million in January 2025).

The more downbeat elements of the report suggest to some analysts that the labor market may still be struggling. Economist Samuel Tombs of Pantheon Macroeconomics said hiring remains uneven, with factors like weather playing a potentially outsized role. "We think it is premature to conclude the labor market has decisively turned a corner," he wrote, per the Associated Press.

Laura Ullrich, director of economic research at Indeed Hiring Lab, also took note of the uneven gains. "It's great that health care is growing the way it is, but I would feel much better if we were seeing broader strength," she said, per Bloomberg. "It is quite lopsided growth."

Moody's Chief Economist Mark Zandi urged caution. "I wouldn't exhale with today's job numbers. The job market remains fragile and highly vulnerable," he wrote on social media. "Yes, payroll employment increased by 130,000 in January, but given the big downward revisions to history, there has been no job growth since last April (Liberation Day). ... without the job gains in healthcare, the economy would have lost a bunch of jobs. And this is before artificial intelligence has meaningfully impacted productivity growth and thus jobs, which feels dead ahead. So, soak in the January job gains, I suspect there won't be many more months with job gains like this in 2026."

Eyeing the Fed: The healthy hiring numbers in January suggest there is little need for the Federal Reserve to move to boost the economy, reducing the likelihood of a rate cut in the next few months. However, that didn't stop Trump from once again calling for another rate cut.

"GREAT JOBS NUMBERS, FAR GREATER THAN EXPECTED!" Trump wrote on his social media platform. "The United States of America should be paying MUCH LESS on its Borrowings (BONDS!). We are again the strongest Country in the World, and should therefore be paying the LOWEST INTEREST RATE, by far. This would be an INTEREST COST SAVINGS OF AT LEAST ONE TRILLION DOLLARS PER YEAR - BALANCED BUDGET, PLUS. WOW! The Golden Age of America is upon us!!!"

Kevin Hassett, who leads the National Economic Council, told Fox Business Network that there is "plenty of room for the Fed to cut rates." Speaking to reporters at the White House, he also said that federal employees now represent the lowest share of the U.S. workforce since 1966, a result of the Trump administration's aggressive effort to slash the size of government.

The bottom line: The labor market bounced back in January, but we'll need to see more data to conclude that it has returned to a fully healthy state.

Fiscal News Roundup

• In Rebuke, House Votes to Roll Back Trump's Tariffs on Canada – Washington Post
• House Votes to Disapprove of Trump's Canada Tariffs – Politico
• Six House Republicans Defy Trump to Block His Canada Tariffs – CNN
• Trump Bridge Threat Came After Lutnick Met Rival Crossing Owner – Bloomberg
• CBO Lifts US Deficit Call by $1.4 Trillion on Trump Policies – Bloomberg
• US January Budget Deficit Falls to $95 Billion as Revenue Gains Outpace Spending Growth – Reuters
• US Signals Limited Military Pullback From Europe – Politico
• F.D.A. Refuses to Review Moderna Flu Vaccine – New York Times
• Hochul's No-Tax-Hike Stance Gets an Unexpected Boost From Mamdani – Politico
• Kennedy Center Fundraising in Deep Turmoil After Trump Takeover – Politico
• Gallup Will No Longer Measure Presidential Approval After 88 Years – The Hill

Views and Analysis

• 5 Takeaways From Pam Bondi's Fiery Testimony – Aaron Blake, CNN
• House Says No to Tariff Man – Robert Kuttner, American Prospect
• Americans Hated Biden's Economy. And Trump's? – Ramesh Ponnuru, Washington Post
• Kevin Warsh's Fed Job Already Looks Impossible – Jonathan Levin, Bloomberg
• Affordability and the 'Epstein Class' Will Define American Politics – David Wallce-Wells, New York Times
• The Bank of Big Medicine – Olivia Webb Kosloff and Emma Freer, American Prospect
• Here's Where Trump Is Unrivaled – Nicholas Kristof, New York Times
• Vaccine Innovation vs. the Bureaucracy – Washington Post Editorial Board