Are Current Economic Forecasts Reasonable?
The CBO forecasts a slow upward increase in the U.S. unemployment rate of 0.2 percentage points per year in each of the next six years to get the unemployment rate up from its current level of 4.3% to CBO’s current 5.5% estimate of the long-run steady-inflation sustainable level of unemployment. CBO projects a steady unemployment rate thereafter. Given the behavior of the economy in the 1980s and 1990s, a steady-inflation sustainable level of unemployment of 5.5% seems reasonable. Of course, reality will be different from the forecast: the next decade is at least as likely to see a steady-inflation sustainable level of unemployment averaging 4.5% (or below) or 6.5% (or above) than one in the range of 4.5% to 6.5%. CBO forecasts a rate of growth of potential GDP–the level of production associated with unemployment at its steady-inflation rate–averaging 2.7% per year. Projected growth in real inflation-adjusted GDP over the next six years is 2.3% per year–slower than projected growth
