The Congressional Budget Office (CBO) has released updated economic projections for 2025 through 2028, presenting a more cautious outlook compared to forecasts from the Federal Reserve and the Office of Management and Budget (OMB). The revised estimates incorporate recent tariff implementations, administrative actions, economic data through early September, and updated demographic assumptions.
CBO anticipates real GDP growth of 1.4 percent in 2025, rising to 2.2 percent in 2026 as the effects of the One Big Beautiful Bill (OBBB) take hold and tariff-related uncertainty diminishes. Beyond 2026, growth is expected to stabilize at approximately 1.8 percent annually. This contrasts with the Federal Reserve’s 1.6 percent forecast for 2025 and OMB’s 1.8 percent estimate. For 2026, the Federal Reserve projects 1.8 percent growth, while OMB forecasts a significantly higher 3.2 percent.
The unemployment rate is expected to climb from 4.3 percent to 4.5 percent by the end of 2025 before declining to 4.2 percent in 2026, driven by OBBB provisions that reduce marginal tax rates on labor income, such as exemptions on tips and overtime pay. However, as the stimulus wanes, the jobless rate is projected to rise again to 4.4 percent by 2027 and remain there through 2028. The Federal Reserve expects a gradual decline to 4.2 percent by 2028, while OMB forecasts a steeper drop to 3.7 percent by 2027.
Inflation is expected to rise temporarily before returning to target levels. CBO projects fourth-quarter-over-fourth-quarter Personal Consumption Expenditure (PCE) inflation to increase from 2.5 percent in 2024 to 3.1 percent in 2025, then fall to 2.4 percent in 2026 and reach the Federal Reserve’s 2 percent goal in 2027. This is higher than CBO’s earlier projection of 2.2 percent for 2025. The Federal Reserve forecasts 3.0 percent PCE inflation in 2025 and 2.6 percent in 2026, with the target reached by 2028. OMB, using annual averages, expects 2.4 percent inflation in 2025 and 2.0 percent thereafter.
For the Consumer Price Index (CPI), CBO forecasts a rise from 2.7 percent in 2024 to 3.1 percent in 2025, followed by a decline to 2.4 percent in 2026 and 2.2 percent in 2027 and 2028. OMB’s annual CPI estimates are 2.5 percent in 2025, 2.2 percent in 2026, and 2.3 percent in 2027, stabilizing at 2.2 percent.
Interest rates are expected to trend downward as inflation cools. CBO projects the average three-month Treasury bill rate to be 4.1 percent in 2025, falling to 3.5 percent in 2026 and 3.2 percent in 2027 and 2028. The 10-year Treasury note rate is expected to stay above 4 percent through 2027 before dropping to 3.9 percent in 2028. OMB forecasts a more aggressive decline, with the 10-year rate falling from 4.3 percent in 2025 to 3.5 percent in 2028 and averaging 3.3 percent annually thereafter.
The Federal Open Market Committee cut interest rates by 25 basis points in 2025, lowering the target range to 4.00–4.25 percent. As of September 22, the three-month Treasury yield averaged 4.00 percent, while the 10-year note stood at 4.15 percent.
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How CBO’s Latest Economic Projections Compare to Other Forecasts
Executive Summary
The Congressional Budget Office (CBO) has released a new set of economic projections for 2025 to 2028, with a forecast more pessimistic than recent projections from the Federal Reserve and the administration’s Office of Management and Budget.
CBO expects real gross domestic product (real GDP) growth to total 1.4 percent in 2025 and then rise to 2.2 percent in 2026 as the positive impacts of the One Big Beautiful Bill (OBBB) materialize and uncertainty about tariffs wanes; it predicts real GDP growth will stabilize at around 1.8 percent per year thereafter.
CBO expects the unemployment rate to rise from 4.3 percent today to 4.5 percent by the end of 2025 and then fall to 4.2 percent by the end of 2026 as the OBBB’s policies increase incentives to work and thus boost employment.
Inflation will temporarily increase before trending toward the target rate, according to the forecast, and the average interest rate on three-month Treasury bills and 10-year Treasury notes will steadily decline as inflation softens.
Introduction
The Congressional Budget Office (CBO) has released a new set of economic projections for 2025 to 2028. The forecast updates CBO’s January 2025 economic forecast to incorporate the tariffs implemented as of August 19, administrative actions as of August 28, economic developments as of September 2, and CBO’s updated demographic projections. CBO’s forecast is more pessimistic than the Federal Reserve’s September 2025 forecast, the administration’s Office of Management and Budget’s (OMB) August 2025 forecast, and CBO’s January 2025 forecast.
Comparing CBO’s Economic Projections to Other Forecasts
Since CBO’s January economic forecast, the outlook for fourth-quarter-over-fourth-quarter real gross domestic product (real GDP) growth has fallen from 1.9 percent in 2025 to 1.4 percent, while the Federal Reserve expects real GDP growth of 1.6 percent and OMB forecasts 1.8-percent growth. Lower net immigration and the downward impact of tariffs on economic growth more than offset the positive impacts of the One Big Beautiful Bill (OBBB) in CBO’s forecast for 2025. In 2026, CBO projects 2.2-percent real GDP growth as the OBBB’s boost to consumption, private investment, and federal purchases materialize and uncertainty about tariffs wanes. The Federal Reserve expects real GDP growth of 1.8 percent in 2026 and OMB forecasts 3.2-percent growth. CBO expects real GDP growth to stabilize around 1.8 percent thereafter, in line with its previous forecast and the Federal Reserve’s long-run projections. OMB, meanwhile, expects average long-term economic growth of 2.9 percent.
Real Gross Domestic Product Growth Estimates
Sources: CBO, Federal Reserve, and OMB.
CBO expects the unemployment rate to rise from 4.3 percent today to 4.5 percent by the end of 2025 and then fall to 4.2 percent by the end of 2026. It expects the OBBB’s provisions that reduce the effective marginal tax rate on labor income – including no tax on tips and overtime pay – will increase the incentive to work and will thus boost employment. As the expansionary impact of the OBBB and the overall demand for goods and services wanes, CBO expects the unemployment rate to total 4.4 percent by the end of 2027 and 2028, in line with its previous forecast. The Federal Reserve expects the unemployment rate to total 4.5 percent in 2025, 4.4 percent in 2026, 4.3 percent in 2027, and 4.2 percent in 2028 and over the long-term. On an annual basis, OMB expects the unemployment rate to total 4.1 percent in 2025, fall to 3.9 percent in 2026, and then stabilize at 3.7 percent in 2027 and beyond.
Unemployment Rate Estimates
Sources: CBO, Federal Reserve, and OMB. CBO’s and the Federal Reserve’s projections of the unemployment rate are calculated on a fourth-quarter basis while OMB’s projections of the unemployment rate are calculated on an annual basis.
CBO forecasts a temporary increase in inflation. It expects Personal Consumption Expenditure (PCE) price index inflation to, on a fourth-quarter-over-fourth-quarter basis, rise from 2.5 percent in 2024 to 3.1 percent in 2025. PCE inflation is expected to fall to 2.4 percent in 2026 and reach the Federal Reserve’s 2-percent target in 2027. In January, CBO projected PCE inflation would fall from 2.5 percent in 2024 to 2.2 percent in 2025, to 2.1 percent in 2026, and then stabilize at the 2-percent target in 2027 and over the long-term. The Federal Reserve projects 3.0-percent PCE inflation in 2025, 2.6 percent in 2026, and 2.1 percent in 2027. PCE inflation is expected to reach the 2-percent target by 2028 and hold steady at that rate over the long-term. On an annual basis, OMB forecasts 2.4-percent PCE inflation in 2025 and 2-percent PCE inflation in 2026 and beyond.
PCE Inflation Estimates
Sources: CBO, Federal Reserve, and OMB. CBO’s and the Federal Reserve’s projections of PCE inflation are calculated on a fourth-quarter-over-fourth-quarter basis while OMB’s projections of PCE inflation are calculated on an annual basis.
CBO expects Consumer Price Index (CPI) inflation to, on a fourth-quarter-over-fourth-quarter basis, rise from 2.7 percent in 2024 to 3.1 percent in 2025. CPI inflation is projected to fall to 2.4 percent in 2026 and to 2.2 percent in 2027 and 2028. In January, CBO projected CPI inflation would fall from 2.7 percent in 2024 to 2.3 percent in 2025 and then tick up to 2.4 percent in 2026. It would then fall back to 2.3 percent in 2027 and 2028 and average 2.2 percent per year thereafter. On an annual basis, OMB forecasts 2.5-percent CPI inflation in 2025, 2.2 percent in 2026, 2.3 percent in 2027, and 2.2 percent in 2028 and beyond.
CPI Inflation Estimates
Sources: CBO and OMB. CBO’s projections of CPI inflation are calculated on a fourth-quarter-over-fourth-quarter basis while OMB’s projections of CPI inflation are calculated on an annual basis.
In response to modest inflation and a slowing labor market, the Federal Reserve’s Federal Open Market Committee (FOMC) cut interest rates for the first time in 2025, with additional rate cuts expected. The FOMC’s 25-basis point cut lowered the target interest rate from a range of 4.25 to 4.50 percent to 4.00 to 4.25 percent. The average interest rate on three-month Treasury bills and 10-year Treasury notes have remained above 4 percent throughout 2025. The three-month rate peaked at 4.46 percent on June 12, and the 10-year rate peaked at 4.79 percent on January 13. As of September 22, the average interest rate on three-month Treasuries is 4.00 percent and the average rate on 10-year Treasuries is 4.15 percent.
CBO expects the average interest rate on three-month Treasuries to total 4.1 percent in 2025, fall to 3.5 percent in 2026, and then dip further to 3.2 percent in 2027 and 2028, in line with its previous forecast. CBO estimates the average interest rate on 10-year Treasuries to remain above 4 percent in 2025, 2026, and 2027 before falling to 3.9 percent in 2028. CBO previously forecasted a 4.1-percent average 10-year rate in 2025 and a 3.9 percent rate in 2026, 2027, and 2028. OMB expects the average interest rate on 10-year Treasury notes to total 4.3 percent in 2025 and then fall to 3.8 percent in 2026, 3.6 percent in 2027, 3.5 percent in 2028, and average 3.3 percent per year thereafter.
Average 10-year Bond Rate Estimates
Sources: CBO and OMB.