The Congressional Budget Office’s interest rate forecast is an important input into the agency’s budget projections. In the United States and globally, real (inflation-adjusted) interest rates have trended downward since the early 1980s. Research on the factors leading to that decline points to demographic changes, such as slowing labor force growth and the aging of the populations; slower trend growth of real output; and a global saving glut. The policy responses to the financial crisis of 2007 to 2009 and the 2020 coronavirus pandemic also played a role in the downward movement in global interest rates. Additionally, over the past several decades, demand for safe liquid assets has markedly increased, driving down the interest rates on such assets in relation to the rates on risky assets. Many of the factors identified as causing interest rates to fall over the past four decades are expected to persist, albeit to a lesser extent. CBO’s forecasts of interest rates over the medium term (10 years) and long term (30 years) are based on the factors identified in the research literature. CBO expects interest rates to rise over the coming decade but to remain below the historical average levels. That forecast is highly uncertain.
