According to a new assessment published on Thursday by the independent Congressional Budget Office, the Federal Reserve is anticipated to lower short-term rates in 2026 and settle its benchmark interest rate at 3.4% towards the end of President Donald Trump’s term in office in 2028.
The budget office predicts that the yield on 10-year Treasury notes will progressively rise, from 4.1% in Q4 of 2025 to 4.3% in Q4 of 2028, despite the Fed’s reduction. The estimate indicates that mortgage borrowing may become more costly over the next two years, as the 10-year Treasury yield serves as a benchmark for mortgage rates.
New economic forecasts for the next three years were presented by the CBO on Thursday, accounting for a number of issues, including Trump’s tariffs, immigration policy, and the federal government shutdown last year.
“Together, those adjustments affected the near-term path of GDP, employment, and inflation but did not materially change the overall economic outlook through 2028,” the report states.
According to the report, unemployment rates are predicted to rise before improving during the next two years.
The CBO projects that the unemployment rate would peak at 4.6% in 2026 and then decline to 4.4% in 2028, primarily due to the effects of Trump’s tax and spending bill, which was approved by Congress and signed into law in July, as well as a decline in the number of immigrants in the nation.
Additionally, the budget office predicts that the tax and spending reform, along with a recovery from the shutdown in late 2025, will boost real gross domestic product growth to 2.2% in 2026. Then, as fiscal assistance declines and labor force growth slows, GDP growth is expected to decelerate to an average of 1.8% in 2027 and 2028. Although the Federal Reserve anticipates growth to reach 2% in 2027 and 1.9% in 2028, the estimates are comparable to theirs.
Predicted Outlook for 2026
The CBO made the same forecast for GDP growth for the following three years when it published an updated three-year outlook in September of last year. Due to tariffs and increased demand, the CBO predicts that inflation will stay over the Fed’s 2% target in the near future before progressively declining to 2.1% in 2028.
Due to Trump’s strict immigration policies and an anticipated decline in childbearing, the CBO released statistics on Wednesday that shows the U.S. population is expected to rise by 15 million people in 30 years, a smaller projection than in prior years.
More than 50 years ago, lawmakers founded the Congressional Budget Office to support the budget process with unbiased, objective research.
Note: Associated Press writer Chris Rugaber contributed to this report.
