The uncertainty from the tidal wave of changes coming from the Trump administration — including mass deportations and tariffs — could have a negative impact on both the U.S. and California economies, said the
The economists anticipate gross domestic product (GDP) will decline 1% in the U.S. by year-end and recover the following year. Unemployment is expected to rise to 4.5% by first quarter 2026, but slowly fall to 4% by 2027. Inflation will remain elevated, hovering at about 3% through 2026.
"Uncertainty related to trade, fiscal policy and geopolitical risk have all surged to new heights with the onset of the second Trump administration," said Clement Bohr, a UCLA Anderson economist, in the U.S. forecast.
The economists aren't forecasting a recession, though they acknowledge great uncertainty exists as to how Trump's economic policies will shake out and the ultimate outcome. Given the recent hotter inflation rates, even before inflationary pressures from Trump policies were accounted for, the Forecast revised its interest rate outlook upward with no cuts expected from the Federal Reserve this year.
The California economy is expected to grow at about the same rate as the U.S. in 2025 and 2026, and slightly faster in 2027. The unemployment rate for the first quarter of this year is expected to average 5.5%, and the averages for 2025, 2026 and 2027 are expected to be 5.7%, 5.2% and 4.8%, respectively.
The loss of undocumented workers either through deportation, or because they voluntarily leave jobs fearing deportation, is expected to decrease employment in the state, said Jerry Nickelsburg, the Forecast's faculty director, in his report. Talk favoring H1B visas by the Trump administration could bolster the state's economy, because those visas are frequently used by tech workers.
Tariffs and deportations will affect California's efforts to reduce its housing crisis, according to Nickelsburg.
Deportations will deplete the construction workforce and the Fed is unlikely to lower the federal funds rate with consumer inflation remaining above its 2% target, which will increase the cost of construction loans. Tariffs will affect prices on items like lighting, electrical fixtures and appliances from China; and nearly 70% of lumber comes from Canada and 71% of gypsum for drywall comes from Mexico.
"It is normal for economic policy uncertainty to be higher before a change in administration," Bohr said. "It is not common for that uncertainty to substantially increase a month into the new administration."
"While the stock market has shown some jitters, financial markets more generally have remained surprisingly sanguine in the face of these elevated risks with corporate bond spreads remaining near record lows," he said.
If rate cuts do come to pass sooner rather than later, it will be to counter a serious decline in economic activity due to policies like the mass deportations and tariffs, Bohr said.
Mass deportations are on track to reach 1 million a year by 2026, which Bohr described as "a level of deportations that will nearly cancel out any gains in the labor force from natural changes and legal immigration."
Historically, mass deportations lower employment among the non-immigrant workforce as well, he said.
When undocumented workers — who largely work jobs in agriculture, construction and food processing — disappear, few others are willing to do that work, and you don't build a house without a roofer or sell asparagus without anyone to harvest it, Bohr said.
The combination of deportations and tariffs are expected to increase inflation, the former by raising prices for the goods that rely on the labor from the missing workers.
The economists are assuming the 2017 Tax Cuts and Jobs Act will be made permanent with minor adjustments, but they are not making a stronger prediction on fiscal policy overall, because it's unclear what tax cuts congressional Republicans will be able to put together, and how they would be funded, Bohr said. He also noted Republicans have a slim three-seat majority in the House and fiscal hawks will not entertain ideas that increase the national debt.
Proposed cuts to Medicaid and SNAP to pay for tax cuts are also not popular with moderate Republicans, who represent districts whose poorer members rely on those programs, Bohr said.
The Department of Government Efficiency has fired 30,000 federal workers and is claiming savings of $55 billion, but Bohr said DOGE's operations have been murky and there has been no evidence to prove savings on that level.
"The evidence they did provide, which they claimed showed $16 billion dollars in savings, was awash in accounting mistakes, such as triple counting the same contract, including contracts that had been closed by the previous administration," Bohr said. "A typo also turned an $8 million contract into an $8 billion contract, leaving only $2 billion out of that $16 billion of confirmed savings," he said.
"There is real potential for reducing waste and increasing the efficiency of the U.S. economy, but regardless of how you interpret the activities of DOGE, they don't inspire confidence," he said.
The primary impact of DOGE actions is a rise in unemployment by a couple of a tenths of a percentage point from firing a couple hundred thousand employees, Bohr said. But it does add further downside risk to the economic outlook, particularly when combined with the potential firings of government contractors, expected also to represent hundreds of thousands of people, he said.
