The Congressional Budget Office is out with their projections for real GDP, inflation, unemployment, and interest rates. The current projections are compared to January 2025 projections.
Real GDP Growth (annual, %)
2025: 1.4% (–0.5 pp vs Jan’s 1.9%) → tariffs + lower immigration outweigh fiscal stimulus.
2026: 2.2% (+0.4 pp vs Jan’s 1.8%) → boost from reconciliation act (tax cuts, expensing, federal spending).
2027: 1.8% (≈ same as Jan) → demand fades, weaker labor supply partly offset by higher domestic output.
2028: 1.8% (≈ same as Jan) → steady, as policy impacts balance out.
By end-2028: Level of GDP ≈ 0.1% higher than January’s forecast.
Inflation (PCE, % y/y)
2025: 3.1% (higher than Jan) → tariff-driven spike.
2026: 2.4% → easing as tariff effects fade but demand still strong.
2027: 2.0% → Fed target reached.
2028: 2.0% → stable at target.
Unemployment Rate (%)
2025: 4.5% → higher vs Jan at 4.3% due to weaker demand.
2026: 4.2% → down from 4.4% in January. Fiscal boost lowers joblessness.
2027: 4.4% → unchanged from January. Softening growth nudges unemployment up.
2028: ~4.4% → unchanged from January little change.
Interest Rates (Fed Funds, % end-Q4)
2025: 4.5% (Aug) → up from 4.3% in January. 3.6% up from 3.4% (Jan 2026) → Fed cuts by 75 bps as growth slows.
2026: 3.5%–3.6% range → easing continues.
2027: 3.3% → stabilizing lower.
2028: 3.3% → unchanged.
10-year Treasury: 4.3% (Q4 2025) → 3.9% (Q4 2028).
Summary: The CBO now sees slower growth in 2025 (1.4%), followed by a temporary rebound in 2026 (2.2%) from fiscal stimulus. Inflation peaks at 3.1% in 2025 before falling back to 2% by 2027–28. Unemployment edges up to 4.5% in 2025, dips in 2026, then levels off near 4.4%. Interest rates are projected to fall steadily as the Fed eases, with the Fed funds rate dropping from 4.3% in late 2025 to 3.3% by 2027–28.
