Economic Growth.
In calendar year 2023, the U.S. #economy grew faster than it did in 2022, even as inflation slowed. Economic growth is projected to slow in 2024 amid increased unemployment and lower inflation. CBO expects the Federal Reserve to respond by reducing interest rates, starting in the middle of the year. In CBO’s projections, economic growth rebounds in 2025 and then moderates in later years. A surge in immigration that began in 2022 continues through 2026, expanding the labor force and increasing economic output.

Interest Rates.
Interest rates rose in 2023 as the federal funds rate (the rate financial institutions charge each other for overnight loans) increased to its highest level since 2001. In CBO’s projections, that rate begins to decline in the second quarter of 2024. Interest rates on 10-year Treasury notes rise in 2024 and then fall through 2026.

Inflation.
Inflation slowed markedly in 2023. In CBO’s projections, #inflation as measured by the price index for personal consumption expenditures (PCE) slows further in 2024, to a rate roughly in line with the Federal Reserve’s long-run goal of 2 percent. It then ticks up in 2025, before declining slightly.

Changes in CBO’s Economic Projections.
Since February 2023, when CBO published its last full economic forecast, the agency has lowered its projections of economic growth and inflation (as measured by the PCE price index) for 2024. CBO also expects interest rates to be higher from 2024 to 2027 than it projected last year. After 2027, CBO’s current and previous economic forecasts are generally similar.

Growth of Real GDP.
The growth of economic output, as measured by the nation’s GDP, is projected to slow in 2024 because of weaker growth in #consumer #spending and a decline in business #investment in nonresidential structures. Growth of real (inflation-adjusted) GDP is projected to increase in 2025 after the Federal Reserve responds to weaker economic conditions in 2024 by lowering interest #rates.

Consumer Spending on #Goods and #Services.
CBO expects consumer spending to continue shifting from goods to services as people gradually resume their pre-pandemic patterns of consumption. By 2030, the share of consumer spending devoted to goods returns to its pre-pandemic trend of a gradual decline, in CBO’s projections.

Unemployment.
In CBO’s projections, the #unemployment rate rises to 4.4 percent by the fourth quarter of 2024, reflecting the slowdown in economic growth. In later years, the unemployment rate ranges from 4.3 percent to 4.5 percent. Fluctuations in that rate are mainly attributable to changes in economic growth and in the size and composition of the labor force.

The Labor Force.
In CBO’s current projections, the number of people who are working or actively seeking employment continues to expand at a moderate pace through 2026. Higher population growth in those years, mainly from increased immigration, more than offsets a decline in labor force participation due to slowing demand for #workers and the rising average age of the population. A large proportion of recent and projected immigrants are expected to be 25 to 54 years old—adults in their prime working years.

Overall Inflation and Core Inflation.
In CBO’s projections, overall #prices (as measured by the PCE price index) increase less in 2024 and 2025 than they did last year. One key reason that inflation is projected to be lower than in recent years is the easing of upward pressures on the prices of #food, #energy, and other goods. Another key reason is weaker growth in the prices of shelter services (which reflect the costs of both rental and owner-occupied #housing) because of elevated interest rates in 2024.

Interest Rates.
CBO expects that in the second quarter of 2024, the Federal Reserve will respond to slowing inflation and rising unemployment by lowering the federal funds rate, which affects interest rates throughout the economy. Starting this year, the difference between the federal funds rate and the interest rate on 10-year #Treasury notes is projected to gradually return to its long-run average.