US real GDP growth to rise from 1.9% in 2025 to 2.2% in 2026: CBO

The resumption of federal activity following the gov­ernment shutdown will also shift some government spending from late 2025 to early 2026, boosting growth this tear in CBO’s projections.

Those factors are partially offset by the effects of higher tariffs, which continue to weigh on trade flows and economic growth, and by changes in immigra­tion policy that slow labour force growth, CBO said in its latest report titled ‘Current View of the Economy From 2026 to 2028’.

From 2027 to 2028, a mix of positive and negative factors will lead to average real GDP growth of 1.8 per cent per year, CBO projected.

In these years, growth will supported by increases in labour sup­ply and in investment that result from the 2025 reconcilia­tion act and by the positive effects on productivity stemming from the adoption of generative artificial intelligence (AI).

Those factors are offset by other forces, including the fading of the reconciliation act’s boost to aggregate demand and the slower growth in the labor force due to reduced net immigration.

US labour market conditions this year reflect a mix of increased labour demand and weak labour force growth. Employment growth is projected to rise in 2026 as the 2025 reconciliation act strength­ens hiring and boosts payroll growth. Those effects are partly offset by net immigration that is lower than it has been in recent years.

In CBO’s projections, employment growth will slow after this year. Weak labour force growth persists as factors dampening it, such as lower net immigration, will outweigh fac­tors increasing it, including the incentives in the 2025 recon­ciliation act.

After rising to an estimated rate of 4.5 per cent at the end of 2025, unemployment rate will reach 4.6 per­ cent in 2026 and will then gradually fall to 4.4 per cent in 2028, CBO projected.

In the near term, higher tariffs and increased aggregate demand from the 2025 reconciliation act will combine to keep inflation above the Federal Reserve’s target rate of 2 per cent.

Inflation will then soften in later years. As measured by the price index for personal consumption expenditures, inflation was 2.8 per cent in 2025 and projected to be 2.7 per cent in 2026; it will continue to drop over the next two years, reaching 2.1 per cent in 2028.

ALCHEMPro News Desk (DS)