Inflation on track toward Fed target in 2024: CBO

The Congressional Budget Office (CBO) said Friday it sees annual inflation slowing toward the Federal Reserve’s 2 percent target for price growth in 2024. 

In its latest forecast, the nonpartisan budget scorekeeper predicted annual inflation would continue its downward trend, falling from an average of 2.9 percent this year to 2.1 percent in 2024, citing “softer labor markets and slower increases in rents.” 

The CBO projects annual inflation will fall as low as 1.9 percent in the first quarter of 2024, then rise to 2.1 in the second quarter and 2.2 percent in the third and fourth quarters. The estimates are based on the CBO’s projections of the personal consumption expenditures (PCE) price index, which is the Fed’s preferred inflation measure. 

While Fed Chair Jerome Powell said earlier this week that inflation is “still too high,” he also expressed confidence that nation was within striking distance of the central bank’s goal. 

“We are likely at or near the peak rate for this cycle,” he said this week, as the Fed decided to continue holding interest rates at decades-high levels to curb spending and slow inflation.

“A very high proportion of forecasters were expecting very weak growth or a recession. Not only did that not happen, we actually had a very strong year,” Powell added. 

In its report Friday, the CBO also projected weaker growth, but not a recession, next year. 

The CBO expects to see 1 percentage point drop in gross domestic product growth, when accounting for inflation, reaching 1.5 percent next year. It also pointed to factors like weakened consumer spending leading to the slower output.  

However, the CBO also expects that figure to reach 2.2 percent in 2025, buoyed by “lower interest rates and improved financial conditions.” 

The unemployment rate is also projected to rise to 4.4 percent in the fourth quarter of 2024, or about half a percentage point higher than where it stood at the start of this quarter. The CBO predicts the rate will remain “close to that level through 2025.” 

“The labor force grows at a moderate pace, with an increased contribution to that growth stemming from projected immigration over the next two years,” the CBO said.  

Updated at 5:05 p.m.