CBO sees lower GDP in 2025 with higher inflation and unemployment | investingLive

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.