Introduction to the US Economy
The US economy is currently at a critical point, with the Federal Reserve cutting interest rates for the first time this year. This decision was made due to a weakening labor market, despite inflation remaining above the Fed’s 2% target. The Trump administration’s changes to trade policy and tariffs, as well as shifts in immigration policy, have created an uncertain outlook for economic growth, inflation, and unemployment.
Economic Projections
The Federal Reserve, Congressional Budget Office (CBO), and the Trump administration’s Office of Management and Budget (OMB) have all released updated economic projections. These projections provide insight into the outlook for economic growth, inflation, and the unemployment rate over the next four years.
Economic Growth
Real gross domestic product (GDP) growth totaled 2.4% in 2024, but is projected to slow down this year before rebounding in the years ahead. The Fed’s projections show GDP growth at 1.6% in Q4 of 2025, rising to 1.8% next year and 1.9% in 2027, before returning to 1.8% in 2028. The CBO projects GDP growth of 1.4% in 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% in the following two years.
Inflation
The personal consumption expenditures (PCE) index is the Fed’s preferred inflation gauge, and it is closely watched to assess whether price growth is in line with the Fed’s 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, before slowing down to 2.6% in 2026, and then declining further to 2.1% in 2027, and returning to the central bank’s 2% target in 2028. The CBO projects PCE inflation will rise to 3.1% in Q4 of 2025, before declining to 2.4% in 2026, and then returning to 2% in 2027 and 2028.
Unemployment Rate
The unemployment rate has risen to 4.3% in August, and the Fed projects that it 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. The CBO sees the unemployment rate at 4.5% in Q4 of 2025, before declining to 4.2% in 2026, and then 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, before declining to 3.9% in 2026, and 3.7% in 2027 and 2028.
Conclusion
In conclusion, the US economy is currently facing a critical point, with a weakening labor market and inflation above the Fed’s target. The Federal Reserve, CBO, and OMB have all released updated economic projections, which provide insight into the outlook for economic growth, inflation, and the unemployment rate over the next four years. These projections show a slowdown in economic growth this year, before rebounding in the years ahead, and a rise in inflation before slowing down. The unemployment rate is projected to rise before declining, with different projections from the Fed, CBO, and OMB. Overall, the outlook for the US economy is uncertain, and it will be important to monitor these projections and any changes in the economy over the next few years.
