rate cuts 2026: Fed rate cuts expected in 2026 as Congressional Budget Office warns of slower growth and costlier mortgages

On Thursday, the Congressional Budget Office (CBO) shared new monetary and economic forecasts for the next three years, according to the AP. The report examines former President Donald Trump’s trade taxes (tariffs), immigration rules and a 2025 government shutdown. CBO said these changes affect the economy in the short term, including growth, employment and prices. However, the report states that the long-term economy will remain mostly the same through 2028.

Unemployment and jobs

Over the next two years, unemployment is expected to rise before improving. According to the AP, the unemployment rate is expected to reach 4.6 percent in 2026. The unemployment rate is expected to decline to 4.4% in 2028, driven by Trump’s tax and spending law and the decrease in the number of immigrants in the country. Real GDP growth is expected to rise to 2.2% in 2026, helped by the tax and spending bill and the recovery from the shutdown at the end of 2025.

Growth, inflation and population

GDP growth is expected to slow to 1.8% in 2027 and 2028 as fiscal support wanes and labor force growth slows. The CBO’s GDP forecasts are similar to the Federal Reserve’s, but the Fed expects 2% growth in 2027 and 1.9% in 2028, the AP noted. CBO had issued the same GDP forecast last September in its previous three-year outlook. Inflation is expected to remain above the Fed’s 2% target in the near term due to tariffs and strong demand. Inflation is expected to gradually decrease to 2.1 percent in 2028.

On Wednesday, the CBO released population data predicting there will be 15 million more people in the United States in 30 years. This population growth estimate is smaller than previous estimates due to Trump’s strict immigration policies and expected lower fertility rates. CBO was established by legislators more than 50 years ago to provide objective, unbiased analysis in support of the budget process.

FAQ

Q1. Will interest rates drop in the USA in 2026?
Yes, the Federal Reserve is expected to cut short-term interest rates in 2026, according to the Congressional Budget Office.Q2. Why might home loans become more expensive even if interest rates fall?

Mortgages may cost more because long-term Treasury bond interest rates are expected to rise over the next few years.