The U.S. economy is at an inflection point as the Federal Reserve cut interest rates for the first time this month amid indications that the labor market is weakening despite inflation remaining above the Fed’s 2% target.
Uncertainty is higher amid the Trump administration’s changes to trade policy and tariffs along with shifts in immigration policy, which have produced an uncertain outlook for economic growth, inflation and unemployment from prominent institutions.
The Federal Reserve’s rate cut announcement was accompanied by updated economic projections, while the nonpartisan Congressional Budget Office (CBO) and the Trump administration’s Office of Management and Budget (OMB) have also released fresh forecasts.
Here’s a look at how the Fed, CBO and OMB view the outlook for economic growth, inflation and the unemployment rate for the next four years.
FED CUTS INTEREST RATES FOR FIRST TIME THIS YEAR AMID WEAKENING LABOR MARKET
Economic Growth
Real gross domestic product (GDP) growth totaled 2.4% in 2024, although it’s projected to slow this year before rebounding in the years ahead, while the latest Commerce Department data shows the economy grew at an annualized rate of 1.6% in the first half of 2025.
The Fed’s projections show GDP coming in at 1.6% in Q4 of 2025 compared to the same quarter the year before. GDP growth is then projected to rise to 1.8% next year and 1.9% in 2027 before returning to 1.8% in 2028.
CBO’s projections from September show 1.4% GDP growth for 2025, rising to 2.2% in 2026 before returning to 1.8% in 2027 and 2028.
The Trump administration’s OMB projects GDP growth of 1.8% in 2025, rising to 3.2% in 2026 and 3.1% the following two years.
US ECONOMY GREW FASTER THAN EXPECTED IN THE SECOND QUARTER
Inflation
One of the most closely watched inflation metrics is the personal consumption expenditures (PCE) index, which is the Fed’s preferred inflation gauge to assess as it looks to keep price growth in-line with its longer-run 2% target. In August, PCE inflation was 2.7%.
The Fed projects that PCE inflation will rise to 3% year-over-year in Q4 of 2025. It then projects inflation slowing to 2.6% in 2026, before declining further to 2.1% in 2027 and returning to the central bank’s 2% target in 2028.
CBO projects PCE inflation will rise to 3.1% in Q4 of 2025, which it then sees declining to 2.4% in 2026 before returning to 2% in 2027 and 2028.
The Trump administration’s OMB estimates that PCE inflation will be 2.4% at the end of this year, and will decline to 2% in 2026 and then remain there through 2028. The OMB calculates PCE on an average year-over-year basis, rather than using a Q4 over Q4 framework like the other estimates.
Another popular inflation gauge is the consumer price index (CPI), which CBO and OMB released updated estimates for this month.
CBO sees CPI hitting 2.8% year-over-year in 2025, before declining to 2.7% next year and 2.2% in 2027 and 2028. OMB projects CPI inflation will be 2.5% this year and will decline to 2.2% in 2026 and then rise slightly to 2.3% in 2027, before returning to 2.2% in 2028.
Unemployment rate
Job growth has cooled in recent months, with the unemployment rate rising to 4.3% in August, with the Bureau of Labor Statistics expected to release the September jobs report this Friday barring a possible disruption caused by a potential government shutdown. The last time a jobs report was not released on the scheduled date was October 2013, when the government was shut down over a standoff between Republicans in Congress and President Obama’s signature legislation, The Affordable Care Act.
The Fed projects the unemployment rate will rise to 4.5% in Q4 of this year before gradually declining to 4.4% in 2026, 4.3% in 2027 and 4.2% in 2028.
CBO sees the unemployment rate at 4.5% in Q4 of 2025. It then projects a decline to 4.2% in 2026 before rising back to 4.4% in 2027 and 2028.
The Trump administration’s OMB projects the unemployment rate will fall to 4.1% this year based on an annual average measurement. It then projects a decline to 3.9% in 2026 and 3.7% in 2027 and 2028.
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