WASHINGTON — The Federal Reserve is expected to cut short-term rates in 2026, with its key interest rate settling at 3.4% towards the end of President Donald Trump ‘s term in office in 2028, according to a new report released Thursday by the nonpartisan Congressional Budget Office.
Despite the Fed’s cuts, however, the budget office projects the yield on 10-year Treasury notes to increase gradually, from 4.1% in the fourth quarter of 2025 to 4.3% in the fourth quarter of 2028. The 10-year Treasury yield is a benchmark for mortgage rates, so the forecast suggests mortgage borrowing could get more expensive over the next two years.
The CBO on Thursday released new economic projections for the next three years, taking into account Trump’s tariffs, immigration policies and last year’s federal government shutdown, among other factors.
“Together, those adjustments affected the near-term path of GDP, employment, and inflation but did not materially change the overall economic outlook through 2028,” the report states.
Jobless rates are expected to increase be