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1 Edward Gamber, CBO's Current View of the Economy from 2025 to 2027 1 (December 18, 2024)

handle is hein.congrec/cboctvw0001 and id is 1 raw text is: he 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 2027 (see Table 1). Those projec- tions reflect economic developments and current law as of December 4, 2024. Early next year, the agency will publish its budget and economic projections for the full 2025-2035 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. CBO's latest economic forecast includes the following projections: • The growth of real gross domestic product (GDP, adjusted to remove the effects of changes in prices) is estimated to be 2.3 percent in 2024. Such growth is 1.9 percent in 2025 and 1.8 percent in 2026 and 2027 in CBO's projections. Spending by consumers and governments, which was stronger than expected in 2024, moderates over the next three years. Higher tax rates following the expiration of some of the provisions of the 2017 tax act at the end of 2025 contribute to the slowdown in consumer spending. • Labor market conditions soften through 2027. In CBO's projections, the unemployment rate, which is estimated to be 4.2 percent in the fourth quarter of 2024, rises to 4.4 percent in the second quarter of 2026 and remains there through the end of 2027. The growth of nonfarm payroll employment slows through 2027. • CBO expects the slowdown in economic growth and the rise in unemployment to lessen the demand for goods and services and contribute to a downward movement in inflation over the next three years. Measured from the fourth quarter of one calendar year to the fourth quarter of the next, inflation in the price index for personal consumption expenditures (PCE) falls from an estimated 2.5 percent in 2024 to 2.2 percent in 2025, 2.1 percent in 2026, and 2.0 percent in 2027. • Interest rates continue to fall through early 2027 in CBO's projections as inflation eases and economic growth slows. The Federal Reserve is projected to lower the federal funds rate (that is, the interest rate that financial institutions charge each other for overnight loans of their monetary reserves) from an estimated 4.6 percent in the fourth quarter of 2024 to 3.4 percent at the end of 2027. The rate on 10-year Treasury notes declines from 4.2 percent in the fourth quarter of 2024 to 3.9 percent in the second half of 2027. CBO last updated its economic forecast in June 2024.1 The agency's projection of average real GDP growth for the 2025-2027 period has remained roughly unchanged since then. CBO's projections of the average unemployment rate, average long-term interest rates, and average inflation rates are now somewhat higher over that period. The upward revision to CBO's projection of the unem- ployment rate reflects a higher-than-expected unemploy- ment rate over the second half of 2024. That higher rate 1. Congressional Budget Office, An Update to the Budget and Economic Outlook: 2024 to 2034 (June 2024), www.cbo.gov/ publication/60039.

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