Congressional Budget Office: The Federal Reserve may cut interest rates slightly to stabilize employment, and then remain unchanged for the long term.

The Congressional Budget Office (CBO) of the United States released its latest economic outlook on Thursday, stating that the Federal Reserve may still slightly lower interest rates to "address the downward risks in the labor market", but will pause further easing afterwards. The report pointed out that with the background of tariff increases and the demand stimulus from the Trump administration's tax cuts, inflation is expected to remain above the Federal Reserve's 2% target level in the coming years. The CBO predicts that short-term interest rates, currently in the range of 3.5% to 3.75%, will decrease to around 3.4% by the fourth quarter of this year, and will be sustained around this level until 2028. This means that the Federal Reserve may enter a longer period of observation after completing limited policy adjustments. In terms of macro data, the CBO forecasts that the US unemployment rate will rise to 4.6% by the end of this year, gradually decrease, and reach 4.4% by 2028. Measured by the indicator preferred by the Federal Reserve, the inflation rate is expected to decrease to 2.7% this year, further decreasing to 2.1% by 2028, but remaining above the policy target for a considerable period of time. In terms of economic growth, the CBO predicts that the US economy will accelerate to a growth rate of 2.2% this year, but the average growth rate will decrease to 1.8% between 2027 and 2028. The report points out that the productivity increase driven by artificial intelligence and the increase in corporate investment brought about by tax cuts will to some extent offset the negative impact of the slowdown in labor force growth due to reduced immigration. Overall, the CBO's outlook is slightly more pessimistic than the forecasts of Federal Reserve officials themselves. In the forecasts released by Federal Reserve policy makers in mid-December last year, it was widely expected that economic growth would be faster, unemployment lower, and inflation falling to the 2% target rate at a faster pace. Under these assumptions, the federal funds rate is expected to decrease to around 3.4% this year, and further decrease to 3.1% next year. However, the CBO points out that there are still significant differences within the Federal Reserve on whether and how much to cut interest rates this year. These differences reflect officials' different judgments on how the tariff increases last year and the tax cuts this year will transmit to the economy, as well as the balance between the risks of "inflation still being high" and "employment may weaken".