CBO’s Current View of the Economy From 2026 to 2028

The Congressional Budget Office periodically updates its economic forecast to reflect recent economic developments and changes in laws that affect taxes and spending. This report provides details about CBO’s latest projections of the economy through 2028 (see Table 1). Those projections were finalized on December 3, 2025. Next month, the agency will publish its budget and economic projections for the full 2026–2036 period.

CBO develops its economic projections so that they fall in the middle of the range of likely outcomes under current law. Those projections are highly uncertain, and many factors could cause actual outcomes to differ from them.

Output

The growth of real gross domestic product (GDP)—that is, the nation’s economic output adjusted to remove the effects of changes in prices—increases from an estimated 1.9 percent in 2025 to 2.2 percent in 2026 as the 2025 reconciliation act (Public Law 119-21) spurs additional economic activity. The resumption of federal activity following the lapse in discretionary appropriations (often called a government shutdown) also shifts some government spending from late 2025 to early 2026, boosting growth in 2026 in CBO’s projections. Those factors are partially offset by the effects of higher tariffs, which continue to weigh on trade flows and economic growth, and by changes in immigration policy that slow labor force growth.

From 2027 to 2028, a mix of positive and negative factors leads to average real GDP growth of 1.8 percent per year. In those years, growth is supported by increases in the labor supply and in investment that result from the 2025 reconciliation act and by the positive effects on productivity stemming from the adoption of generative artificial intelligence. Those factors are offset by other forces, including the fading of the reconciliation act’s boost to aggregate demand and the slower growth in the labor force due to reduced net immigration.

Labor Market

Labor market conditions in 2026 reflect a mix of increased labor demand and weak labor force growth. Employment growth rises in 2026 as the 2025 reconciliation act strengthens hiring and boosts payroll growth. Those effects are partly offset by net immigration that is lower than it has been in recent years. In CBO’s projections, employment growth slows after 2026. Weak labor force growth persists as factors dampening it, such as lower net immigration, outweigh factors increasing it, including the incentives in the 2025 reconciliation act. After rising to an estimated rate of 4.5 percent at the end of 2025, the unemployment rate reaches 4.6 percent in 2026 and then gradually falls to 4.4 percent in 2028.

Inflation

In the near term, higher tariffs and increased aggregate demand from the 2025 reconciliation act combine to keep inflation above the Federal Reserve’s target rate of 2 percent. Inflation then softens in later years in CBO’s projections. As measured by the price index for personal consumption expenditures, inflation is 2.8 percent in 2025 and 2.7 percent in 2026, and it continues to drop over the next two years, reaching 2.1 percent in 2028.

Interest Rates

In 2026, short-term interest rates fall in CBO’s projections as the Federal Reserve takes additional action to address downside risks to the labor market. The effective federal funds rate (that is, the median interest rate that financial institutions charge each other for overnight loans of their monetary reserves) drops from 3.9 percent in the fourth quarter of 2025 to 3.4 percent in the fourth quarter of 2026; it remains at 3.4 percent through 2028. The yield on 10-year Treasury notes increases gradually, from 4.1 percent in the fourth quarter of 2025 to 4.3 percent in the fourth quarter of 2028, as the term premium (the premium paid to bondholders for the extra risk associated with holding longer-term bonds) rises after being low in recent years.

Comparison With CBO’s View of the Economy in September 2025

CBO’s current forecast differs from its September 2025 projections for the 2026–2028 period.1 The changes mainly reflect recent developments and updated assessments of recent events and policies rather than broad revisions to the economic outlook.

The federal government shutdown in the fourth quarter of 2025 reduced economic output in that quarter because fewer services were provided by federal workers, some federal purchases and transfers were delayed, and a temporary reduction in aggregate demand lowered private-­sector output. The reduction in economic activity is projected to be reversed in the first quarter of 2026 as the federal government completes spending that was delayed in late 2025 and households and businesses boost their spending in response to the restoration of their income following the shutdown.

The current forecast also incorporates tariff policy changes introduced since August (after the September projections were prepared) as well as a reassessment of tariffs’ effects on prices, trade flows, and GDP growth. CBO also revised upward its projections of net immigration.2 Together, those adjustments affected the near-term path of GDP, employment, and inflation but did not materially change the overall economic outlook through 2028.