The Congressional Budget Office (CBO) has projected that inflation will continue to slow down over the next two years, gradually approaching the Federal Reserve’s target rate of 2%. According to the nonpartisan U.S. agency’s forecast released on Friday, the price index for personal consumption expenditures (PCE), which is the Fed’s preferred measure of inflation, is anticipated to decrease from 2.9% this year to 2.1% next year. However, it is then expected to rise slightly to 2.2% in 2025.
The CBO attributes this expected increase to a reduction in downward pressures on inflation in food and energy prices, as well as a moderate expansion in price pressures for certain categories of services resulting from stronger economic activity.
Separately, Treasury Secretary Janet Yellen expressed her belief on Wednesday that inflation would reach the Fed’s 2% target by the end of next year. This statement was made just before the U.S. central bank announced its shift away from interest-rate hikes and its consideration of three cuts next year.
Additionally, the CBO predicted that the unemployment rate will reach 4.4% in the fourth quarter of next year and stay relatively stable at that level until 2025. This reflects an increase compared to this year’s fourth-quarter unemployment rate of 3.9%.
Furthermore, the CBO’s inflation-adjusted projections indicate that U.S. gross domestic product (GDP) is projected to grow by 1.5% next year, slightly down from the 2.5% expansion experienced this year. However, GDP growth is expected to reach 2.2% in 2025, benefiting from lower interest rates and improved financial conditions.
Although the main U.S. stock indexes (SPX and DJIA) displayed mixed performance on Friday, they remained on track for significant weekly gains.