CBO Forecasts Fed Rate Cuts Starting 2026

The nonpartisan Congressional Budget Office released new economic projections on Thursday forecasting that the Federal Reserve will cut short-term interest rates beginning in 2026, with the key federal funds rate expected to settle at 3.4 percent by the end of 2028, during the final year of President Donald Trump's term.

The report anticipates a gradual rise in the yield on 10-year Treasury notes, a key benchmark for mortgage rates, from 4.1 percent in the fourth quarter of 2025 to 4.3 percent in the fourth quarter of 2028. This trend could make home loans more costly for borrowers over the coming years, even as the Fed eases monetary policy to support growth.

The CBO's three-year outlook incorporates the effects of several recent developments, including Trump's tariffs on imports, restrictive immigration measures, and a federal government shutdown that occurred late in 2025. Officials at the budget office stated that these factors will influence the near-term trajectory of gross domestic product, employment, and inflation, though they do not alter the broader economic picture through 2028.

Employment conditions are projected to soften initially before stabilizing. The...