The Congressional Budget Office regularly publishes its baseline projections of what the federal budget and the economy would look like in the current year and the following 10 years if current laws governing federal taxes and spending generally remained unchanged. This report summarizes—with an emphasis on graphic presentation—the information about CBO’s economic forecast that was published in The Budget and Economic Outlook: 2023 to 2033 (February 2023).
Economic output (gross domestic product, or GDP) is projected to stop growing early this year in response to last year’s sharp rise in interest rates. Output is projected to start growing again during the second half of 2023 as falling inflation allows the Federal Reserve to reduce interest rates, causing rebounds in sectors of the economy that are sensitive to interest rates.
Inflation was higher in 2021 and 2022 than in any other years of the previous four decades: 5.7 percent and 5.5 percent, respectively, as measured by the price index for personal consumption expenditures. The annual growth of that price index is projected to remain above the Federal Reserve’s long-term goal of 2 percent through 2024 and then fall near to that goal by 2026.
Interest rates on Treasury securities are projected to rise further in early 2023 and then gradually fall beginning in late 2023.
The unemployment rate is projected to increase from 3.6 percent at the end of last year to 5.1 percent at the end of 2023 before gradually declining to 4.5 percent by the end of 2027.
CBO’s projections for the federal budget depend in part on the agency’s projection of the growth of nominal GDP. (That growth reflects both inflation and the growth of real GDP—that is, GDP adjusted to remove the effects of inflation.) Since May 2022, when CBO published its previous baseline projections, the agency has lowered its projection of the growth of nominal GDP in 2023 from 4.5 percent to 3.1 percent. However, CBO is now projecting much faster growth of nominal GDP in the 2024–2026 period than it did last May; after 2026, growth rates for nominal GDP are roughly similar to those in the May projections. CBO has increased, on average, its projections of short- and long-term interest rates over the next five years, mostly because it has raised its near-term projections of inflation since May.