America’s economic future just received fresh analysis from the nation’s premier budget forecasting agency, painting a picture of monetary policy shifts ahead. The Congressional Budget Office has released comprehensive projections that signal significant changes in Federal Reserve policy throughout the coming years. These forecasts carry substantial implications for borrowers, investors, and policymakers as they navigate an evolving economic landscape shaped by new presidential policies and global market dynamics.
Congressional Budget Office forecasts rate cuts by the Fed
The Congressional Budget Office has unveiled its latest forecasts about the economy on Thursday, suggesting that the Fed will make moves due to short-term cuts in the interest rate for the year 2026. This indicates a transition in the current monetary policies. The report about the economy from the CBO considers factors that have been outlined in policies formulated by the Trump administration.
The CBO has estimated that these variations in interest rates can be expected to occur according to economic trends. In spite of the possible variations in interest rates set by the Fed, it is likely that the yield on the 10-year Treasury would rise from 4.1% in Q4:2025 to 4.3% in Q4:2028. The variation in short-term and long-term interest rates clearly shows that the market conditions will soon witness a complexity in market trends.
The trends in economic growth are still diverse for the future
The actual GDP growth rate is projected to strengthen to 2.2% in 2026, driven by recent tax and spending laws and the fade-out effects from the October 2025 government shutdown. This will be followed by a growth rate of 1.8% in 2027 and 2028, as the effects of the stimulus dissipate and the growth rate of the labor force slows faster. These are in line with the Fed’s projection, though the Fed projects a slightly stronger performance with 2% growth in 2027 and 1.9% in 2028.
The major interest rate is also expected to remain stable at 3.4% in the latter part of Trump’s administration in 2028, which is quite lower in comparison to the existing scenario. Unemployment rates are also expected to peak in 2026 at 4.6%, and subsequently decline to 4.4% in 2028 due to Trump’s tax and expenditure policies, as well as fewer inflows to the US.
Main economic indicators during the forecasting period
- Inflation was a bit higher at the initial stages due to tariffs, and later came down to 2.1% in 2028
- The increase in treasury yields affects the mortgage rates for consumers to borrow money to buy homes
- Labor market adjustments in response to policy and demographic trends related to participation in the labor force
Economic policy affects long-term economic prospects
The CBO predictions consider the effect of tariffs issued by President Donald Trump, immigration policy, and the federal government shutdown in late 2025. However, none of these had any effect on the economic outlook up to 2028. The rate of inflation will continue to be above the 2% level set by the Fed in the coming period, but this is expected to stabilize. The budget office said that the effect of everything put together had no influence on the GDP performance in the coming period.
It has been projected that the total expected growth of the population for the next 30 years in the United States will be 15 million, which has been reduced due to the tightening of immigration laws and lower projections about birth rates. The Congressional Budget Office was established over 50 years ago to provide objective analysis to facilitate the budgetary process.
The prospects for the national economy, based on the latest estimates from the Congressional Budget Office, will take place in a complex economic environment that is characterized not only by the lowering of interest rates through the Fed, but will also be dominated by rising long-term interest rates. The latest estimates point out the difficulty that policymakers need to manage in addressing economic growth and growing inflation due to new trends that the nation will begin to see in the second half of the decade.
