The White House has cut its growth prediction for the US economy this year from 2.7% to 1.6%, and for next year from 3% to 2.2%.
The administration has accepted that the problems in the housing market and financial markets, as well as rising oil prices, will take their toll.
The jobless rate is forecast to hit 5.3% this year and 5.6% in 2009.
This is up from the administration's previous prediction of 4.9% for both years. It was 4.7% in 2007.
Consumer price inflation is expected to hit 3.8% this year, up from the previous forecast of 2.7% and well above the Federal Reserve's target of 2.0%.
And George W Bush's successor as US president after this November's election is expected to face a record federal budget deficit of $482bn (£242bn).
Tax rebates
"The housing slump, tighter conditions in credit markets and continuing energy price shocks have cut into the expected growth rate," the White House report said.
The US economy depends heavily on consumer spending, which is why there is such concern about the way rising energy, food and housing costs could hit it.
Earlier in the year, a stimulus package was enacted that included giving tax rebates to millions of households.
The estimated $168bn cost of that programme may help keep Americans shopping, but with a record federal budget deficit the next US president will have little room to pay for any additional measures.
The figures "confirm the dismal legacy of the Bush administration: under its policies, the largest surpluses in history have been converted into the largest deficits in history", said House Budget Committee chairman John Spratt
