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

The Federal Reserve is expected to cut short-term interest rates in 2026. The main Federal Reserve interest rate is expected to reach 3.4% by the end of Trump’s term in 2028. Even if the Fed cuts rates, the 10-year Treasury rate is expected to slowly go up. It may rise from 4.1% at the end of 2025 to 4.3% by the end of 2028. When the 10-year Treasury rate goes up, home loans and mortgages can become more expensive.

On Thursday, the Congressional Budget Office (CBO) shared new money and economy estimates for the next three years, according to AP. The report looks at former President Donald Trump’s trade taxes (tariffs), immigration rules, and the 2025 government shutdown. The CBO said these changes affected the economy in the short term, like growth, jobs, and prices. But the report said the long-term economy up to 2028 will mostly stay the same.

Unemployment and jobs

Unemployment is expected to rise before improving over the next two years. The jobless rate is expected to peak at 4.6% in 2026, as cited by AP. The unemployment rate is projected to ease to 4.4% in 2028, influenced by Trump’s tax and spending law and fewer migrants in the country. Real GDP growth is expected to rise to 2.2% in 2026, helped by the tax and spending law and recovery from the late-2025 shutdown.

Growth, inflation and population

GDP growth is then expected to slow to 1.8% in 2027 and 2028 because fiscal support drops and labor force growth slows. The CBO’s GDP forecasts are similar to the Federal Reserve’s, although the Fed expects growth of 2% in 2027 and 1.9% in 2028, as stated by AP. The CBO issued the same GDP projection 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 stronger demand. Inflation is expected to gradually fall to 2.1% in 2028.

On Wednesday, the CBO released population data projecting 15 million more people in the U.S. over 30 years. This population growth estimate is smaller than previous forecasts due to Trump’s hardline immigration policies and expected lower fertility rates. The CBO was established by lawmakers more than 50 years ago to provide objective, impartial analysis to support the budget process.

FAQs

Q1. Will interest rates go down in the U.S. in 2026?

Yes, the Federal Reserve is expected to cut short-term rates in 2026, according to the Congressional Budget Office.

Q2. Why could home loans become more expensive even if rates are cut?

Home loans may cost more because long-term Treasury rates are expected to rise over the next few years.