from CBO's current view on the economy from 2023 to 2025:
Compared with its February 2023 forecast, CBO's current forecast shows weaker growth, lower unemployment, and higher interest rates in 2024 and 2025. 2 The agency's current inflation forecast is mixed compared with its February 2023 forecast.
Table 1 Summary:
CBO's GDP path looks slightly better than the median in a survey of professional forecasters, in line with FT-IGM's fourth-quarter 2024 forecast. There are some differences in the information sets – SPF is based on data from the beginning of November and CBO is based on data as of December 5th. The Atlanta Federal Reserve Bank's GDPNow implied GDP level on December 14 was much higher than the CBO path.
figure 1: GDP (black bold), CBO December forecast (sky blue), Professional Forecaster Survey median November forecast (pink), FT-IGM December median (red square), December 14 GDPNow ( green square), all units are billions. 2017$ Sal. Source: BEA 2023 Season 3 Edition 2, Congressional Budget Office (December 2023), Philadelphia Fed, Federal Reserve Bank of Atlantaand the author's calculations.
figure 2: Ten-year Treasury yield (bold black), CBO forecast (sky blue), survey median of professional forecasters (pink), in %; 10-Year Fed Funds Spread (bold blue), CBO Forecast (light blue) in %. Observations for the fourth quarter of 2023 are as of December 15. Source: Treasury, Federal Reserve via FRED, Congressional Budget Office (December 2023)and the author's calculations.
There is an interesting difference between the SPF survey forecast and the CBO forecast, with the CBO forecast temporarily falling and then rising. There is a steady decline in SPF (admittedly, starting in November, not December). Two points highlighted by the CBO explain why the rate path is higher than in February:
- Higher interest rates in 2024 and 2025 reflect stronger economic activity in 2023, leading the Federal Reserve to raise the target range for the federal funds rate above the Congressional Budget Office's February 2023 forecast.
- The upward revision (0.3 percentage points) to the Consumer Price Index for All Cities (CPI-U) in 2025 reflects faster-than-expected growth in the cost of housing services. (The CPI-U places more emphasis on housing service costs than the PCE price index.) PCE inflation in 2024 is lower than previously forecast (down 0.3 percentage points) as supply conditions improve better than expected, affecting prices in PCE prices The weights in the index are higher than in the CPI-U.
Rates are higher and terms are longer compared to February, but not compared to July.
image 3: Ten-year Treasury yield (bold black), CBO forecast (sky blue), CBO July forecast (red), CBO February forecast (salmon), in %. Observations for the fourth quarter of 2023 are as of December 15. Source: Treasury, Federal Reserve via FRED, Congressional Budget Office (December 2023)and the author's calculations.
