-4

-2

0

2

4

6

CBO

Administration

Blue Chip

Consensus

Percentage Points

Forecast Minus Actual Growth of Inflation-Adjusted Output: Two-Year Forecasts 

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

CBO

CBO’s Economic 

Forecasting 

Record:

2017 Update

OCTOBER 2017
Notes

Many of the figures and the two tables show data from the Blue Chip consensus, which is 

an average of about 50 private-sector forecasts published in Blue Chip Economic Indicators.

Supplemental data, including an interactive graphic, are posted along with this report on 

CBO’s website (www.cbo.gov/publication/53090).

www.cbo.gov/publication/53090
Contents

Summary 1

How Does CBO’s Forecasting Record Compare With Those of the 

Administration and the Blue Chip Consensus? 1

Do CBO’s Forecasts Exhibit Statistical Bias? 1

How Accurate Are CBO’s Forecasts? 4

What Are Some Sources of Forecast Errors? 4

How Do Assumptions About Fiscal Policy Affect Forecast Errors? 4

What Are the Limitations of This Evaluation? 4

CBO’s Methods for Evaluating Forecasts 4

Calculation of Forecast Errors 5

BOX 1. HOW CBO CALCULATES ECONOMIC FORECAST ERRORS 6

Assessment of Forecasts 6

Limitations of the Forecast Evaluations 8

Some Sources of Forecast Error 10

Turning Points in the Business Cycle 10

Changes in Productivity Trends 11

Changes in Crude Oil Prices 13

CBO’s Two-Year Forecasts 13

Output 15

BOX 2. COMPARISON OF CBO’S AND THE FEDERAL RESERVE’S TWO-YEAR FORECASTS 16

Inflation 20

Interest Rates 25

Wages and Salaries 29

CBO’s Five-Year Forecasts 34

Output 36

Inflation 38

Interest Rates 41

Wages and Salaries 45

Appendix: Forecast and Historical Data Used in This Evaluation 51

List of Tables and Figures 55

About This Document 56

CBO’s Economic Forecasting Record: 

2017 Update

Summary

For four decades, the Congressional Budget Office has 

prepared economic forecasts to use in making its projections for the federal budget. Forecasts of output, inflation, interest rates, and wages and salaries, in particular, 

play a significant role in CBO’s budget analysis. For 

example, to project receipts from individual income 

taxes, CBO uses its forecasts of wages and salaries. 

CBO regularly evaluates the quality of its economic forecasts for several reasons.1 One is to determine if it needs 

to change its forecasting methods. For example, partly 

in response to past forecast errors, CBO has changed the 

way it forecasts productivity growth and interest rates in 

recent years. Another reason for evaluating past forecasts is to calculate the errors in those forecasts, which 

in turn can be used to approximate the range of errors 

or uncertainty in the agency’s current forecasts. Finally, 

publishing such evaluations gives readers a tool to assess 

the usefulness of the agency’s projections and is thus one 

way in which CBO demonstrates its commitment to 

transparency.

To evaluate its economic forecasts, CBO compares 

them with the economy’s actual performance and with 

the Administration’s forecasts, which are published in 

the Office of Management and Budget’s annual budget 

documents, and the Blue Chip consensus—an average of 

about 50 private-sector forecasts published in Blue Chip 

Economic Indicators. Such comparisons can indicate the 

extent to which imperfect information and analysis may 

have caused CBO to miss patterns or turning points 

in the economy. They can also help the agency identify 

areas where it has tended to make larger errors than other 

analysts. This report evaluates CBO’s economic forecasts 

over two-year and five-year periods. The span of years 

that CBO examined for this evaluation differs by variable 

and by forecast period on the basis of data availability.

1. CBO has also evaluated its revenue forecasts. See Congressional 

Budget Office, CBO’s Revenue Forecasting Record (November 

2015), www.cbo.gov/publication/50831. The agency is currently 

analyzing its past projections of outlays. 

How Does CBO’s Forecasting Record Compare With 

Those of the Administration and the Blue Chip 

Consensus?

CBO’s forecasting record is comparable in quality to 

those of the Administration and the Blue Chip consensus. When CBO’s projections were inaccurate by large 

margins, the other two forecasters’ projections tended 

to have similar errors because all forecasters faced the 

same challenges. For example, all three sets of forecasts of 

inflation were relatively inaccurate during the late 1970s 

and early 1980s but generally became more accurate as 

inflation stabilized in more recent decades. 

Do CBO’s Forecasts Exhibit Statistical Bias? 

Statistical bias is the tendency of a forecaster’s projections 

to be too low or too high over a period of time. A simple 

and widely used indicator of bias is the mean error. By 

that measure, CBO’s forecasts of most economic indicators examined here have tended to be too high by 

small amounts, but the agency’s two-year forecasts of 

real (inflation-adjusted) output were slightly too low, on 

average.

After evaluating the mean errors of its forecasts, CBO 

reached two conclusions:

■ CBO’s two-year forecasts of output growth and 

inflation have been less biased than its two-year 

forecasts of interest rates and the growth of wages and 

salaries, which exhibit a sizable upward bias—that is, 

they have tended to be higher than actual values by a 

larger amount (see Figure 1).2

■ For most economic indicators, the mean errors of 

CBO’s five-year forecasts (which are discussed in 

the second half of the report) have been slightly 

larger than those of the agency’s two-year forecasts. 

That pattern shows that CBO has a tendency to 

overestimate economic trends over the longer term.

2. Forecast errors throughout this report were calculated as 

projected values minus actual values; thus, a positive error is an 

overestimate. 
2 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 1.

Mean Errors of Two-Year Forecasts 

Percentage Points

CBO

Administration

Blue Chip Consensus

Output

Inflation

Interest Rates

Wages and Salaries

Growth of Real Output 

(1980–2014)

Growth of Nominal Output 

(1980–2014)

Inflation in the CPI 

(1981–2014)

Dierence Between

Inflation in the CPI and in the 

Output Price Index (1981–2014) 

Interest Rate on 3-Month 

Treasury Bills (1981–2014)

Real Interest Rate on 

3-Month Treasury Bills 

(1981–2014)a 

Interest Rate on 10-Year 

Treasury Notes (1984–2014)

Growth of Wages and Salaries 

(1980–2014)

Change in Wages and Salaries Measured as a 

Percentage of Output (1980–2014) b

b

-0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis; 

Bureau of Labor Statistics; Federal Reserve.

Forecast errors are projected values minus actual values; thus, a positive error is an overestimate. The mean error is the arithmetic average of the 

forecast errors.

Date ranges refer to the years in which the forecasts were made. For details on the data underlying the summary measures presented here, see the appendix.

Output is either GDP or (before 1992) GNP. Real output is nominal output adjusted to remove the effects of inflation. 

CPI = consumer price index; GDP = gross domestic product; GNP = gross national product.

a. The real interest rate is the nominal interest rate deflated by the projected rate of growth in the CPI.

b. The Blue Chip consensus does not include forecasts of wages and salaries.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 3

Figure 2.

Root Mean Square Errors of Two-Year Forecasts

Percentage Points

CBO

Administration

Blue Chip Consensus

Output

Inflation

Interest Rates

Wages and Salaries

Growth of Real Output 

(1980–2014)

Growth of Nominal Output 

(1980–2014)

Inflation in the CPI 

(1981–2014)

Dierence Between

Inflation in the CPI and in the 

Output Price Index (1981–2014) 

Interest Rate on 3-Month 

Treasury Bills (1981–2014)

Real Interest Rate on 

3-Month Treasury Bills 

(1981–2014)a 

Interest Rate on 10-Year 

Treasury Notes (1984–2014)

Growth of Wages and Salaries 

(1980–2014)

Change in Wages and Salaries Measured as a 

Percentage of Output (1980–2014) b

b

0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2.2

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis; 

Bureau of Labor Statistics; Federal Reserve.

Forecast errors are projected values minus actual values. The root mean square error is calculated by squaring the forecast errors, averaging those 

squares, and taking the square root of that average.

Date ranges refer to the years in which the forecasts were made. For details on the data underlying the summary measures presented here, see the appendix.

Output is either GDP or (before 1992) GNP. Real output is nominal output adjusted to remove the effects of inflation. 

CPI = consumer price index; GDP = gross domestic product; GNP = gross national product.

a. The real interest rate is the nominal interest rate deflated by the projected rate of growth in the CPI.

b. The Blue Chip consensus does not include forecasts of wages and salaries.
4 CBO’s Economic Forecasting Record: 2017 Update October 2017

Other forecasters’ projections generally exhibited bias of 

a similar magnitude and in the same direction. The mean 

errors of the Blue Chip consensus forecasts were very 

similar to those of CBO’s forecasts. The Administration’s 

forecasts of the growth of real output had larger mean 

errors than CBO’s forecasts and the Blue Chip consensus, 

but its forecasts of inflation and interest rates exhibited 

less upward bias than did the other two forecasters’.

How Accurate Are CBO’s Forecasts?

Accuracy is the degree to which forecast values are dispersed around actual outcomes. One widely used measure of accuracy is the root mean square error (RMSE). 

By that measure, CBO’s two-year forecasts are generally 

as accurate as those of the Blue Chip consensus and, for 

most economic indicators, slightly more accurate than 

the Administration’s two-year forecasts (see Figure 2). 

The accuracy of all three sets of five-year forecasts is 

comparable. 

Comparing the accuracy of its two-year and five-year 

forecasts, CBO observed the following: 

■ CBO’s five-year forecasts of output and inflation are 

more accurate than its two-year forecasts of those 

variables, in part because long-term forecasts rest 

more on underlying trends in the economy than 

on short-term cyclical movements, which are very 

difficult to predict. 

■ CBO’s five-year interest rate forecasts are less accurate 

than its two-year forecasts of those rates because of 

the large and unexpectedly persistent decline in longterm interest rates that began in the early 1980s. 

■ For its forecasts of wages and salaries, CBO’s findings 

are less clear-cut. The agency’s two-year and five-year 

forecasts of the growth of wages and salaries are equal 

in terms of accuracy, but its five-year forecasts of the 

change in wages and salaries measured as a percentage 

of output are more accurate than the corresponding 

two-year forecasts.

What Are Some Sources of Forecast Errors?

CBO’s and other forecasters’ largest forecast errors 

often stem from the difficulties of anticipating three key 

developments:

■ Turning points in the business cycle—that is, the 

beginning and end of recessions; 

■ Changes in trends in productivity; and 

■ Changes in crude oil prices. 

How Do Assumptions About Fiscal Policy Affect 

Forecast Errors?

Fiscal policy refers to the federal government’s policies on 

taxes and spending. Assumptions about fiscal policy are 

an important ingredient of an economic forecast because 

such policy affects output, inflation, interest rates, and 

wages and salaries. To provide lawmakers with a benchmark against which they can assess potential changes in 

the law, CBO constructs its economic forecasts under 

the assumption that federal fiscal policy will generally 

remain the same as under current law. By contrast, the 

Administration’s forecasts reflect the assumption that 

the policies in the President’s proposed budget will be 

adopted. Forecasters in the private sector (such as those 

who contribute to the Blue Chip consensus) form their 

own projections about the future of federal fiscal policy, 

so their forecasts reflect changes in law that they anticipate will be made. 

Those different assumptions about fiscal policy account 

for some of the variation among forecasts and thus in 

forecast errors. Assumptions about fiscal policy can be 

particularly significant when policymakers are considering major changes to current law. For example, in 

2009 and 2010, CBO’s two-year forecasts of real output 

growth diverged noticeably from the Administration’s 

forecasts and the Blue Chip consensus because of the different fiscal policy assumptions underlying the forecasts.

What Are the Limitations of This Evaluation?

This evaluation has three limitations. First, all forecasters 

change their procedures over time, which makes it hard 

to draw inferences about future errors. Second, because 

forecasters make different assumptions about future fiscal 

policy, it is difficult to compare the quality of forecasts 

without considering the role of expected changes in laws. 

Finally, the historical data (on output and income, for 

example) that forecasters use to make economic projections are often revised, which can complicate the task of 

interpreting forecast errors.

CBO’s Methods for Evaluating Forecasts

CBO evaluates the quality of its forecasts by examining its past forecast errors and comparing them to the 

errors in the Administration’s forecasts and the Blue Chip

consensus. The Blue Chip consensus is particularly useful 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 5

for comparisons because it incorporates a variety of 

forecasts and therefore reflects a broader blend of sources 

and methods than any single forecaster would use. Over 

time, composite forecasts like the Blue Chip consensus 

often provide better estimates than any projection made 

by a single forecaster or using a single method.3

This report evaluates CBO’s economic forecasts over 

the first two years and over the first five years of CBO’s 

10-year baseline projection period. The forecasts are 

made at the beginning of a calendar year, and the errors 

are calculated by subtracting the average actual value over 

the forecast period from the average projected value. The 

two-year forecasts include the full period that is used to 

prepare the baseline budget for the upcoming fiscal year. 

The five-year forecasts are used to examine the accuracy 

of longer-term projections of several variables that are 

important for CBO’s baseline budget projections.4

The span of years evaluated differs by economic indicator 

and by forecast horizon depending on the data available. 

CBO’s and the Administration’s forecasts published 

in the early months of the years 1976 to 2014 were 

examined, but those published in early 2015 were not, 

because actual data for all of 2016—which are necessary 

to evaluate the two-year forecasts made in 2015—were 

not available when the analysis for this report was completed. To ensure that differences in the availability of 

forecast data did not affect the interpretation of forecast 

errors, the ranges of years covered by the comparisons 

were determined by the earliest possible year for which 

data from the Blue Chip consensus were available. The 

first two-year Blue Chip consensus forecast that CBO 

examined for this evaluation was released in 1980 and 

included projections of real and nominal output. In 

3. See Allan Timmermann, “Forecast Combinations,” in Graham 

Elliott, Clive W. J. Granger and Timmermann, eds., Handbook 

of Economic Forecasting, vol. 1 (North Holland, 2006), 

pp. 135–196, https://doi.org/10.1016/S1574-0706(05)01004-

9; Andy Bauer and others, “Forecast Evaluation with CrossSectional Data: The Blue Chip Surveys,” Economic Review, 

vol. 88, no. 2 (Federal Reserve Bank of Atlanta, 2003), 

pp. 17–31, http://tinyurl.com/yb6bj9dq; Henry Townsend, “A 

Comparison of Several Consensus Forecasts,” Business Economics, 

vol. 31, no. 1 (January 1996), pp. 250–261, www.jstor.org/

stable/23487509; and Robert Clemen, “Combining Forecasts: 

A Review and Annotated Bibliography,” International Journal 

of Forecasting, vol. 5, no. 4 (1989), pp. 559–583, https://doi.

org/10.1016/0169-2070(89)90012-5. 

4. CBO’s baseline projection period is currently 10 years, but in the 

past, it has been as short as 5 years.

1981, forecasts of inflation and 3-month interest rates 

were also included. Blue Chip first published five-year 

forecasts of real and nominal output in 1979, of inflation and the 3-month interest rate in 1983, and of the 

10-year Treasury note rate in 1984.5

This report updates CBO’s 2015 Economic Forecasting 

Record with additional forecasts and new and revised 

historical data.6 This evaluation adds two years of CBO’s, 

the Administration’s, and Blue Chip’s forecasts that 

were not included in the previous report—the two-year 

forecasts published in 2013 and 2014 and the five-year 

forecasts published in 2010 and 2011. It also includes a 

few additional forecasts from the early years of the Blue 

Chip consensus and revisions to previously published 

historical data that have been made since the last report 

was released. The additional data and revisions to older 

data did not significantly alter the main findings from 

the previous report—namely, that the quality of CBO’s 

two-year and five-year forecasts is similar to that of other 

organizations’ forecasts. 

Another difference between this report and previous 

versions is that this report analyzes five-year forecasts of 

interest rates. In the past, CBO analyzed only two-year 

forecasts of interest rates. 

Calculation of Forecast Errors

For this report, CBO measured forecast errors as the 

difference between the average forecast value and the 

average actual value over each forecast period. (See 

Box 1 for an example of how CBO calculates its forecast 

errors.) The actual values are based on the latest available 

data from the Bureau of Economic Analysis (BEA) and 

other statistical agencies. A positive error indicates that 

the actual value of the indicator was lower than CBO 

expected, and a negative error indicates that it was higher 

than expected.

The method used to calculate the forecast errors for this 

report differs slightly from that used in CBO’s evaluation 

5. See the appendix for further details on the choice of historical 

time-series data and on the sources of the forecast data used in 

the comparisons.

6. See Congressional Budget Office, CBO’s Economic Forecasting 

Record: 2015 Update (February 2015), www.cbo.gov/

publication/49891.
6 CBO’s Economic Forecasting Record: 2017 Update October 2017

of errors in revenue projections.7 In that evaluation, projection errors were calculated for a single fiscal year. For 

example, the error in CBO’s two-year revenue projection 

for 2007 is the percentage difference between the actual 

amount of revenues received in fiscal year 2007 and the 

revenues projected for that year in January 2006.8

7. Congressional Budget Office, CBO’s Revenue Forecasting Record

(November 2015), www.cbo.gov/publication/50831.

8. In CBO’s evaluation of its revenue projections, the agency 

calculated errors as the percentage difference (rather than the 

simple difference used in this report) between the projected and 

actual values because revenues are expressed as dollar amounts. 

Assessment of Forecasts

Like CBO’s previous studies of its economic forecasts, 

this evaluation focuses on two indicators of quality: 

If the errors in revenue projections were measured as simple 

differences in dollar amounts, they would be difficult to compare 

over time. (A $5 billion error in 1992, for example, would be 

significantly larger than a $5 billion error in 2014.) The simple 

difference is more appropriate here because this report evaluates 

errors in forecasts of economic indicators that are expressed as 

rates or percentages—growth rates, interest rates, and changes in 

wages and salaries as a percentage of output. Forecast errors in 

this report are thus percentage-point differences between forecast 

and actual values.

Box 1.

How CBO Calculates Economic Forecast Errors

The Congressional Budget Office calculates forecast errors by 

subtracting the average actual value of an economic indicator over a two-year (or five-year) period from the average 

projected value of that indicator over the same period. For 

example, to calculate the error for the two-year forecast of 

the growth of real (inflation-adjusted) gross domestic product 

(GDP) that was published in the January 2000 Budget and 

Economic Outlook, CBO first calculated the geometric average 

of the projected growth rates of real GDP for calendar years 

2000 and 2001, which was 3.2 percent.1 The agency then 

1. The geometric average is the appropriate measure for averaging growth 

rates. It was used to calculate the average for all indicators except the 

change in wages and salaries as a percentage of output. Because that 

calculated the average actual growth rate of real GDP for 

those two years, which was 2.5 percent. Finally, it subtracted 

the average actual rate of 2.5 percent from the average projected rate of 3.2 percent, resulting in an error of 0.7 percentage points. To determine the error for the five-year forecast 

made that same year, CBO took the averages of projected and 

actual output growth rates for calendar years 2000 through 

2004.

indicator is a ratio rather than a growth rate, the appropriate measure for 

averaging is the arithmetic average.

Example: Calculating the Error in the Two-Year Forecast of the Growth of Real GDP That CBO Published in January 2000

CBO’s 

Forecast

Rate

The error for the two-year 

forecast made in 2000 is . . .

Calculate the 

Two-Year 

Average

Actual

Rate

2000

2001

3.3%

3.1%

4.1%

1.0%

3.2% – 2.5% = 0.7 percentage points

Sources: Congressional Budget Office; Bureau of Economic Analysis.

GDP = gross domestic product.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 7

statistical bias and accuracy. Other characteristics of 

forecast quality—such as whether forecasters optimally 

incorporate all relevant information when making their 

projections—are harder to assess.9

Statistical Bias. Statistical bias indicates the tendency of 

a set of forecasts to err in a certain direction. To measure 

bias, CBO used the mean error—that is, the arithmetic 

average of the forecast errors—which is the simplest 

and most widely used measure. CBO measures bias to 

determine whether its forecasts are systematically too 

high or too low. The agency’s goal is to provide forecasts 

of economic indicators that represent the middle of the 

distribution of possible outcomes. The presence of bias 

might indicate that the forecast methods should be modified to eliminate persistent error. 

The mean error does not, however, provide a complete 

characterization of the quality of a forecast. Because positive and negative errors are added together to calculate 

the average, underestimates and overestimates offset one 

another. A small mean error might indicate that all the 

forecasts had only small errors, but it could also result 

from large overestimates and large underestimates that 

offset one another. Experimenting with alternatives to 

the mean error measure, several analysts outside of CBO 

have used more elaborate techniques to test for bias in 

the agency’s forecasts.10

9. Several studies that have examined how well relevant information 

has been incorporated into CBO’s economic forecasts—a 

characteristic referred to as forecast efficiency—have found that 

the agency’s forecasts are relatively efficient. See, for example, 

Robert Krol, “Forecast Bias of Government Agencies,” Cato 

Journal, vol. 34, no. 1 (Winter 2014), pp. 99–112, https://

tinyurl.com/y7cmapw3 (PDF, 88 KB); Stephen M. Miller, 

“Forecasting Federal Budget Deficits: How Reliable Are US 

Congressional Budget Office Projections?” Applied Economics, 

vol. 23, no. 12 (December 1991), pp. 1789–1799, http://doi.

org/10.1080/00036849100000168; and Michael T. Belongia, 

“Are Economic Forecasts by Government Agencies Biased? 

Accurate?” Review, vol. 70, no. 6 (Federal Reserve Bank of 

St. Louis, November/December 1988), pp. 15–23, http://tinyurl.

com/ychze7ah. Although statistical tests can identify sources 

of inefficiency in a forecast after the fact, they generally do not 

indicate how such information could be used to improve forecasts 

when they are being made. 

10. One such alternative approach to testing a forecast for bias is 

based on linear regression analysis of actual values compared 

with forecast values. For details of that method, see Jacob A. 

Mincer and Victor Zarnowitz, “The Evaluation of Economic 

Forecasts,” in Jacob A. Mincer, ed., Economic Forecasts and 

Expectations: Analysis of Forecasting Behavior and Performance

Accuracy. The accuracy of a set of forecasts is the degree 

to which forecast values are dispersed around actual outcomes. Narrower dispersion indicates greater accuracy. 

Generally, the more accurate CBO’s economic forecasts 

are, the more accurate its forecasts of revenues and outlays will be.

Two commonly used measures of accuracy are the mean 

absolute error and the root mean square error. The mean 

absolute error is the arithmetic average of the forecast 

errors without regard to the direction of the errors (that 

is, the negative signs are removed from underestimates 

before averaging). Thus, unlike in the mean error, in the 

mean absolute error, underestimates and overestimates 

do not offset one another. The RMSE—the calculation 

of which involves squaring the errors (thus removing the 

negative signs)—also shows the size of the error without 

regard to direction, but it places a greater weight on 

larger deviations.11

(National Bureau of Economic Research, 1969), pp. 3–46, www.

nber.org/chapters/c1214. Studies that have used that method 

to evaluate CBO’s and the Administration’s short-term forecasts 

have not found statistically significant evidence of bias over 

short forecast horizons. See, for example, Robert Krol, “Forecast 

Bias of Government Agencies” Cato Journal, vol. 34, no. 1 

(Winter 2014), pp. 99–112, https://tinyurl.com/y7cmapw3

(PDF, 88 KB); Graham Elliott and Allan Timmermann, 

“Economic Forecasting,” Journal of Economic Literature, vol. 

46, no. 1 (March 2008), pp. 3–56, https://doi.org/10.1257/

jel.46.1.3; George A. Krause and James W. Douglas, 

“Institutional Design Versus Reputational Effects on Bureaucratic 

Performance: Evidence from U.S. Government Macroeconomic 

and Fiscal Projections,” Journal of Public Administration Research 

and Theory, vol. 15, no. 2 (April 2005), pp. 281–306, https://

doi.org/10.1093/jopart/mui038; and Michael T. Belongia, “Are 

Economic Forecasts by Government Agencies Biased? Accurate?” 

Review, vol. 70, no. 6 (Federal Reserve Bank of St. Louis, 

November/December 1988), pp. 15–23, http://tinyurl.com/

ychze7ah. For more elaborate studies of bias that included CBO’s 

forecasts among a sizable sample, see J. Kevin Corder, “Managing 

Uncertainty: The Bias and Efficiency of Federal Macroeconomic 

Forecasts,” Journal of Public Administration Research and 

Theory, vol. 15, no. 1 (January 2005), pp. 55–70, https://doi.

org/10.1093/jopart/mui003; and David Laster, Paul Bennett, 

and In Sun Geoum, “Rational Bias in Macroeconomic Forecasts,”

Quarterly Journal of Economics, vol. 114, no. 1 (February 1999), 

pp. 293–318, https://doi.org/10.1162/003355399555918. 

11. The RMSE is calculated by squaring the forecast errors, averaging 

those squares, and taking the square root of that average. The 

mean square forecast error is equal to the square of the bias in 

the errors plus the variance (that is, the square of the standard 

deviation) of the errors.
8 CBO’s Economic Forecasting Record: 2017 Update October 2017

For this evaluation, CBO focused primarily on the 

RMSE, which can be used to gauge the uncertainty 

surrounding future forecasts. A smaller RMSE suggests that a forecaster’s projections have less uncertainty 

surrounding them than they would if the RMSE was 

larger. Each time CBO produces a forecast, it does so 

with the expectation that the forecast will be unbiased, 

which implies that the RMSE of CBO’s past forecasts 

approximates the standard deviation associated with the 

new forecast. In general, when the errors of a given set of 

forecasts are normally distributed around a mean error 

of zero—that is, if the misestimates are roughly symmetrically distributed around zero and there are more 

relatively small errors than large ones—about two-thirds 

of the forecasts will have misestimates within a range of 

plus or minus one RMSE. For example, the RMSE of 

CBO’s two-year forecasts of the growth of real output 

is 1.3 percentage points (see Table 1). An RMSE of that 

value indicates that there is about a two-thirds chance 

that the actual average growth rate over the next two 

years will be within 1.3 percentage points of the rate in 

CBO’s current forecast.12

Limitations of the Forecast Evaluations

There are three reasons to be cautious when interpreting 

the results of this forecast evaluation: Forecasting methods change over time, different forecasters make different 

assumptions about future fiscal policy, and many of the 

actual values of the projected variables are periodically 

revised. 

Over time, CBO and other forecasters have changed the 

procedures that they use to develop economic forecasts—partly in response to changes in the economy and 

partly in response to advances in forecasting methods. 

Although such changes are aimed at improving the quality of forecasts, they make it difficult to draw inferences 

about future errors. 

12. For a similar approach to measuring uncertainty that uses the 

RMSE, see David Reifschneider and Peter Tulip, Gauging the 

Uncertainty of the Economic Outlook Using Historical Forecasting 

Errors: The Federal Reserve’s Approach, Finance and Economics 

Discussion Series Paper 2017-020 (Board of Governors of 

the Federal Reserve System, February 2017), https://doi.

org/10.17016/FEDS.2017.020 (PDF, 404 KB). For a visual 

representation of the uncertainty in CBO’s forecasts of real 

gross domestic product, see Congressional Budget Office, The 

Budget and Economic Outlook: 2017 to 2027 (January 2017), 

Figure 2-11, www.cbo.gov/publication/52370. 

Another limitation of this analysis is that the forecasters considered here make different assumptions about 

future changes in fiscal policy, and it can be impossible to isolate those assumptions from each forecaster’s 

overall economic analysis. CBO is required by statute to 

assume that future fiscal policy will generally reflect the 

provisions in current law, an approach that derives from 

the agency’s responsibility to provide a benchmark for 

lawmakers as they consider proposed changes in law.13

When the Administration prepares its forecasts, however, it assumes that the fiscal policy in the President’s 

proposed budget will be adopted. The private forecasters included in the Blue Chip survey make their own 

assumptions about fiscal policy, but the survey does not 

report them. Forecast errors may be driven by those 

different assumptions, especially when forecasts are made 

while policymakers are considering major changes to 

current fiscal policy.14

A third reason to be cautious when interpreting the 

results of this forecast evaluation is that the historical 

values of many of the data series that CBO and other 

analysts forecast are periodically revised by the agencies 

that compile those data. BEA and other agencies use various methods and statistical definitions to estimate gross 

domestic product (GDP) and other economic indicators 

on the basis of data that they and others collect. Those 

agencies periodically revise their published estimates 

of economic indicators for past years as more information becomes available and as definitions and methods 

improve. Not all series—the consumer price index (CPI) 

and interest rates, for example—are revised. 

Revisions to historical data can affect the calculations 

of forecast errors. For example, the RMSE of CBO’s 

two-year forecasts of the growth of real output is 1.2 percentage points if calculated using the data that were 

available immediately after the two-year horizon of each 

forecast. But the RMSE is 1.3 percentage points if the 

most recently available data are used in the calculation. 

13. For further discussion of why CBO assumes that current 

laws generally remain in place when preparing its economic 

forecasts, see Congressional Budget Office, What Is a 

Current-Law Economic Baseline? (June 2005), www.cbo.gov/

publication/16558.

14. Different assumptions about monetary policy can also make 

it difficult to compare CBO’s forecasts with other forecasts. 

CBO assumes that monetary policy will reflect the economic 

conditions that the agency expects to prevail under the fiscal 

policy specified in current law. 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 9

Table 1.

Summary Measures for Two-Year Forecasts

Percentage Points

Mean error -0.1 0.2 *

Mean absolute error 1.0 1.2 1.1

Root mean square error 1.3 1.5 1.4

Mean error 0.2 0.5 0.4

Mean absolute error 1.1 1.3 1.1

Root mean square error 1.5 1.7 1.5

Mean error 0.2 0.1 0.3

Mean absolute error 0.7 0.7 0.8

Root mean square error 0.9 0.9 1.0

Mean error -0.1 -0.2 -0.1

Mean absolute error 0.3 0.4 0.4

Root mean square error 0.4 0.6 0.4

Mean error 0.6 0.2 0.5

Mean absolute error 0.9 1.0 1.0

Root mean square error 1.3 1.3 1.2

Mean error 0.3 0.1 0.2

Mean absolute error 1.0 1.1 1.0

Root mean square error 1.2 1.4 1.4

Mean error 0.4 0.2 0.5

Mean absolute error 0.7 0.8 0.7

Root mean square error 0.7 0.9 0.8

Mean error 0.4 0.7 b

Mean absolute error 1.3 1.5 b

Root mean square error 1.8 2.0 b

Mean error 0.1 0.1 b

Mean absolute error 0.4 0.4 b

Root mean square error 0.5 0.5 b

Inflation

Blue Chip

CBO Administration Consensus

Growth of Real Output (1980–2014)

Growth of Nominal Output (1980–2014)

Output

Change in Wages and Salaries Measured as a Percentage of Output (1980–2014)

Interest Rates

Wages and Salaries

Inflation in the CPI (1981–2014)

Difference Between Inflation in the CPI and the Output Price Index (1981–2014)

Interest Rate on 3-Month Treasury Bills (1981–2014)

Real Interest Rate on 3-Month Treasury Bills (1981–2014)a

Interest Rate on 10-Year Treasury Notes (1984–2014)

Growth of Wages and Salaries (1980–2014)

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis; 

Bureau of Labor Statistics; Federal Reserve.

Forecast errors are projected values minus actual values; thus, a positive error is an overestimate. The mean error is the arithmetic average of the 

forecast errors. The mean absolute error is the average of the errors with the negative signs removed from the underestimates. The root mean square 

error is calculated by squaring the forecast errors, averaging those squares, and taking the square root of that average.

Date ranges refer to the years in which the forecasts were made. For details on the data underlying the summary measures presented here, see the appendix.

Output is either GDP or (before 1992) GNP. Real output is nominal output adjusted to remove the effects of inflation.

CPI = consumer price index; GDP = gross domestic product; GNP = gross national product; * = between –0.05 percentage points and zero.

a. The real interest rate is the nominal interest rate deflated by the projected rate of growth in the CPI.

b. The Blue Chip consensus does not include forecasts of wages and salaries.
10 CBO’s Economic Forecasting Record: 2017 Update October 2017

Researchers have found that in some cases, such as when 

comparing the performance of models over time, it may 

be more appropriate to use earlier estimates of data than 

to use the more recent updates.15

Data revisions also make it difficult to identify the 

source of forecast error. For example, BEA made several 

downward revisions to estimates of real GDP growth 

during the 2007–2009 recession (see Figure 3). When 

CBO prepared its baseline forecast in January 2009, 

real GDP had reportedly fallen by an annualized rate of 

0.5 percent during the third quarter of 2008; however, 

revised data now show a 1.9 percent drop that quarter. 

Similarly, the latest revisions show that average annual 

growth of real GDP was nearly one-half of a percentage point lower during the recession than BEA initially 

reported in January 2010. Had CBO and other forecasters known the true state of the economy at that time, 

their projections probably would have been different. It 

is therefore difficult to identify how much of the forecast 

error (measured using current data) is due to the fact that 

forecasters based their projections on contemporary data 

that has since been revised and how much of the error is 

attributable to other sources, such as unforeseen economic developments. 

Changes to definitions and methods also affect the 

comparability of current versions of historical data series 

with past forecasts. For example, business and government spending on computer software was once treated 

as spending for an intermediate good—that is, an input 

into the production process—and thus did not count as 

a component of GDP. But in 1999, BEA reclassified such 

spending as investment. That same year, BEA adopted 

new methods for calculating the price indexes for various 

categories of consumption. Largely as a result of those 

changes, BEA increased its estimates of growth in real 

GDP for the 1980s and 1990s. In particular, BEA’s 

estimates of average annual growth in real GDP from 

1992 to 1998 rose by 0.4 percentage points, and inflation in the GDP price index for those years was revised 

downward by 0.1 percentage point per year.16 Forecasters 

15. See, for example, Tom Stark and Dean Croushore, “Forecasting 

With a Real-Time Data Set for Macroeconomists,” Journal of 

Macroeconomics, vol. 24, no. 4 (December 2002), pp. 507–531,

https://doi.org/10.1016/S0164-0704(02)00062-9. 

16. See Eugene P. Seskin, “Improved Estimates of the National 

Income and Product Accounts for 1959–98: Results of 

the Comprehensive Revision,” Survey of Current Business

cannot anticipate such changes when making their projections; they rely on the definitions and methods that 

exist at the time.

Some Sources of Forecast Error

Forecast errors often stem from the difficulties of anticipating three key economic developments—turning 

points in the business cycle, changes in productivity 

trends, and changes in crude oil prices. 

Turning Points in the Business Cycle

Turning points—peaks and troughs in the business 

cycle—mark the beginning and end of recessions, which 

are periods of significant contraction in economic 

activity. Between 1976 and 2014, the years covered in 

this evaluation, there were five recessions—in 1980, 

from 1981 to 1982, from 1990 to 1991, in 2001, and 

from 2007 to 2009. CBO’s, the Administration’s, and 

Blue Chip’s forecasts of the growth of real output made 

around each recession since 1981 were substantially less 

accurate than those made in other years (see Figure 4). 

Forecast errors tend to be large around business cycle 

peaks for a number of reasons. First, recessions are 

sometimes prompted by events or shocks that forecasters 

cannot predict. For example, in August 1990, the Iraqi 

invasion of Kuwait led to a spike in oil prices and a drop 

in consumer confidence, which probably contributed to 

the recession that followed. 

Another reason errors in forecasts made near the start of 

a recession tend to be larger is that economists cannot 

be sure that a recession has begun until sufficient data 

are available, typically many months after the fact. 

For example, the Business Cycle Dating Committee 

of the National Bureau of Economic Research did not 

announce the December 2007 business cycle peak until 

11 months later. For that reason, forecasters may not 

account for a recession in their projections even after it 

has started because they may not yet be aware of it.

Further complicating the forecasting process is that 

turning points in the business cycle often occur during 

periods of high uncertainty. For example, in January 

2008, one month after the business cycle peak, CBO 

reported, “The economic outlook this year is particularly 

vulnerable to uncertainty about the degree to which 

(December 1999), pp. 15–43, www.bea.gov/scb/pdf/national/

nipa/1999/1299niw.pdf (PDF, 392 KB).
October 2017 CBO’s Economic Forecasting Record: 2017 Update 11

Figure 3.

CBO’s Forecasts and Actual Growth Rates of Real GDP

Percentage Change From Previous Year

-6

-4

-2

0

2

4

6

2006 2007 2008 2009 2010 2011 2012 2013 2014

Actual and 

Forecast Values,

January 2010

Actual Values,

Current Estimates

Actual and

Forecast Values,

January 2009

The Bureau of Economic Analysis made several 

downward revisions to its estimates of real GDP growth 

during the 2007–2009 recession (indicated by the 

vertical bar), making it dicult to identify the source of 

forecast error.

Sources: Congressional Budget Office; Bureau of Economic Analysis.

Solid lines represent the estimates of actual values that were available at the time each forecast was prepared. Dashed lines represent forecast values.

Real GDP is nominal GDP adjusted to remove the effects of inflation. 

Data are quarterly and are plotted through the fourth quarter of 2014.

GDP = gross domestic product.

the problems in the housing and financial markets 

will spill over to affect other sectors of the economy. 

Growth in 2008 could be weaker than CBO expects 

if the turmoil in the financial markets leads to a more 

severe economy-wide curtailment of lending than CBO 

anticipates.”17 Under such uncertain conditions, widely 

different outcomes can appear equally probable, making 

it difficult to gauge whether an economic downturn is 

imminent.

Finally, the nature of business cycles has changed over 

time. Until the early 1990s, the U.S. economy typically 

grew rapidly for several quarters after a recession ended. 

Since then, however, recoveries have been much slower. 

Failing to anticipate the changing nature of business 

cycles has been one source of forecast error. 

Changes in Productivity Trends

Forecasts of productivity growth play a critical role in 

forecasting potential output, which is an estimate of 

17. Congressional Budget Office, The Budget and Economic Outlook: 

Fiscal Years 2008 to 2018 (January 2008), p. 21, www.cbo.gov/

publication/41661.

the maximum sustainable level of production. CBO’s 

forecast of potential output is a measure of how much 

the economy can sustainably grow during periods of 

expansion and determines the trajectory of GDP in the 

later years of the agency’s 10-year forecasts. 

Labor productivity is the average real output per hour 

of work. Thus, by definition, real output equals labor 

productivity times the total number of hours worked. 

The following are some of the sources of growth in 

labor productivity:

■ Capital accumulation (the change in the amount of 

equipment, structures, software, and infrastructure 

in use),

■ Education and skills development (also called 

investment in human capital), and

■ Innovation (the greater efficiency achieved through 

better tools, systems, or methods).
12 CBO’s Economic Forecasting Record: 2017 Update October 2017

When forecasting productivity growth, CBO considers 

historical trends in capital accumulation, educational 

attainment, and the effects of public policy on incentives to invest. Shifts in such trends may be difficult to 

identify until several years after the fact. Consequently, 

forecasters may make incorrect inferences about the trajectory of productivity growth and, therefore, potential 

output growth.

Since the early 1970s, there have been three shifts in the 

trend of productivity growth—in 1973, 1996, and 2005 

(see Figure 5). When the recession began in late 1973, 

labor productivity growth in the nonfarm business sector 

dropped precipitously. Whereas productivity had previously grown at a rate of 2.7 percent per year, it grew by 

only about 1.5 percent per year through the mid-1990s. 

At least in part because most forecasters in the 1970s 

expected that the productivity trend of the previous 

decades would prevail, their forecasts of real output in 

the mid- to late 1970s turned out to be too optimistic. That expectation also helps explain why forecasters 

repeatedly underestimated inflation in their projections 

for the late 1970s.

In 1996, growth in labor productivity in the nonfarm 

business sector accelerated, averaging more than 3 percent per year for nearly a decade. For several consecutive 

years, forecasters underestimated the trend of productivity growth, which partly explains why their projections 

of the economy’s growth rate were too low and their projections of inflation in the output price index were too 

high.18 The acceleration in labor productivity stemmed 

from a pickup in technological progress (especially in 

information technology) and an increase in the amount 

of capital per worker as firms invested heavily in the new 

technology. 

Since 2005, the growth of labor productivity has been 

noticeably slower than it was previously for reasons 

that are not fully understood. The slowdown partly 

reflects cyclical factors related to the severe recession 

that occurred from 2007 to 2009 and the ensuing weak 

recovery. In addition, the growth of the labor force 

decelerated, which in turn slowed the growth of capital 

services and possibly reduced the rate at which businesses 

could bring new technologies into the production process. Some research suggests that such problems might 

be exacerbated by other, longer-term structural problems 

that might be impeding the rate at which new technologies diffuse through industries.19 The unexpected 

18. See Spencer Krane, “An Evaluation of Real GDP Forecasts: 

1996–2001,” Economic Perspectives, vol. 27, no. 1 (Federal 

Reserve Bank of Chicago, 2003), pp. 2–21, http://tinyurl.

com/y8wadllm; and Scott Schuh, “An Evaluation of Recent 

Macroeconomic Forecast Errors,” New England Economic Review

(Federal Reserve Bank of Boston, January/February 2001), 

pp. 35–56, http://tinyurl.com/ych7zk8d. 

19. See Ryan A. Decker and others, Declining Business Dynamism: 

Implications for Productivity? Hutchins Center Working Paper 23 

(Brookings Institution, September 2016), http://tinyurl.com/

lv9cs9h; and Dan Andrews, Chiara Criscuolo, and Peter N. Gal, 

The Global Productivity Slowdown, Technology Divergence, and 

Public Policy: A Firm Level Perspective, Hutchins Center Working 

Paper 24 (Brookings Institution, September 2016), http://tinyurl.

com/km6942w.

Figure 4.

Root Mean Square Errors of Two-Year Forecasts 

of the Growth of Real Output Made Near 

Business Cycle Peaks 

Percentage Points

0

1.0

2.0

3.0

Forecasts Made Near 

Business Cycle Peaksa

Forecasts Made in 

Other Yearsb

CBO

Administration

Blue Chip Consensus

Sources: Congressional Budget Office; Office of Management and Budget; 

Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis.

Real (inflation-adjusted) output is either real GDP or (before 1992) real GNP.

Forecast errors are projected values minus actual values. The root mean 

square error is calculated by squaring the forecast errors, averaging 

those squares, and taking the square root of that average.

GDP = gross domestic product; GNP = gross national product.

a. Calculations are for forecasts made near business cycle peaks—those 

published in 1981, 1990, 2001, and 2008.

b. Calculations are for all forecasts made between 1981 and 2014 

except for the four made near business cycle peaks.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 13

slowdown in labor productivity that began in 2005 

contributed to forecasters’ overestimating interest rates in 

recent years. 

The trend of productivity growth is also one determinant 

of long-term interest rates. Thus, the difficulties forecasters have had projecting that trend have also contributed to forecasters’ persistently overestimating interest 

rates. Other unanticipated trends, such as the increased 

foreign demand for Treasury securities and the declining 

term premium—that is, the compensation that bondholders require for the extra risk associated with holding 

longer-term securities—also contributed to errors in 

forecasting interest rates.

Changes in Crude Oil Prices

Prices for crude oil have fluctuated widely over the past 

40 years, creating sizable shifts in the price of petroleum 

imports and sometimes in overall consumer prices (see 

Figure 6). The effect of those fluctuations on overall 

inflation largely stems from the fact that crude oil is an 

important energy source. In the United States, petroleum accounts for more than one-third of total energy 

consumption.20

The reason that there are such large movements in crude 

oil prices is that producers and consumers have only 

limited capacity to adjust supply and demand quickly in 

response to changing market conditions.21 Fluctuations 

in oil prices are often difficult to forecast because markets 

for petroleum products can be sensitive to developments 

that forecasters cannot reasonably be expected to predict. In particular, sudden price changes have occurred 

because of political decisions or instability in oil-producing countries. During the 1973–1981 period, for 

example, oil prices spiked at the time of the oil embargo 

imposed by the Organization of Arab Petroleum Exporting Countries (1973 to 1974), the Iranian Revolution 

(1979), and the start of the Iran–Iraq War (1980). 

Political factors remain a source of uncertainty, but they 

appear to have become less important in explaining volatility. Recently, oil prices rose steeply leading up to the 

2007–2009 recession and fell sharply in 2014 and 2015 

because of shifts in global supply and demand as well as 

technological changes. 

In large part, CBO bases its forecasts of oil prices on 

the prices implied by oil futures contracts, adjusted to 

account for the agency’s forecasts of economic conditions. Although futures markets provide some predictive 

power, they are imperfect indicators of actual prices in 

the future. 

CBO’s Two-Year Forecasts

CBO’s forecast errors have generally been similar to those 

of the Administration and the Blue Chip consensus. (For 

a comparison of CBO’s two-year forecasts with those of 

the Federal Reserve, see Box 2 on page 16.) To evaluate 

the forecasts, CBO looked at various economic indicators, including the growth of output, inflation, interest 

20. See Energy Information Administration, Monthly Energy Review 

(January 2017), Table 1.3, https://go.usa.gov/xNFE6 (PDF, 

5.48 MB).

21. In the near term, consumers are constrained by the existing 

energy efficiency of their homes, places of work, and modes of 

transportation; producers are constrained by their equipment, 

technology, and the availability and accessibility of natural 

resources. For further discussion, see Congressional Budget 

Office, Energy Security in the United States (May 2012), www.cbo.

gov/publication/43012.

Figure 5.

Trends in Labor Productivity

Average Annual Percentage Change

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

1947 to 1973 1974 to 1996 1997 to 2005 2006 to 2015

Source: Congressional Budget Office, using data from the Bureau of 

Labor Statistics.

Data show the average annual growth of labor productivity in the 

nonfarm business sector. Labor productivity equals real (inflationadjusted) output divided by the total number of hours worked. The 

periods shown correspond with the significant shifts in the average 

annual growth of productivity that occurred in 1973, 1996, and 2005.
14 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 6.

Price of Petroleum Imports and Consumer Price Inflation

0

0.4

0.8

1.2

1.6

2.0

-4

0

4

8

12

16

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Consumer Price Index With and Without Energy Pricesb

Percentage Change

CPI-U Without

Energy Prices

CPI-U

Price of Petroleum Importsa

Index, 2009 = 1

Changes in petroleum prices have been 

an important source of forecast error for 

overall inflation over the past 40 years.

Sources: Congressional Budget Office; Bureau of Labor Statistics; Bureau of Economic Analysis.

The vertical bars indicate the duration of recessions, which extend from the peak of a business cycle to its trough.

Data are annual and are plotted through 2015. The first year for which data on the price of petroleum imports are shown is 1967.

CPI-U = consumer price index for all urban consumers.

a. The price of petroleum imports is the price index for petroleum imports divided by the price index for personal consumption expenditures, excluding 

prices for food and energy.

b. The major components of energy prices in the CPI-U are motor fuel (which is primarily composed of petroleum products), electricity, and natural gas 

purchased from utilities.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 15

rates, and changes in wages and salaries (a significant 

part of taxable income).22 For most economic indicators, all three sets of forecasts exhibited an upward bias 

(see Figure 1 on page 2). On average, CBO and the 

Blue Chip consensus slightly underestimated real output growth, and the Administration overestimated it. 

Compared with the Administration’s forecasts, CBO’s 

forecasts of nominal output growth were less biased, but 

its forecasts of interest rates were more biased. Measured 

on the basis of the RMSE, CBO’s two-year forecasts 

were about as accurate as the Blue Chip consensus (see 

Figure 2 on page 3). They were also comparable, 

in terms of accuracy, to the Administration’s forecasts, 

though for some economic indicators, CBO’s forecasts 

were slightly more accurate. 

CBO’s forecasts of the growth of output (real and 

nominal) and of inflation show less upward bias than its 

forecasts of interest rates and of the growth of wages and 

salaries. However, the output forecasts were less accurate 

than the forecasts of long-term interest rates, despite 

the fact that the interest rate forecasts exhibit a sizeable 

upward bias. Forecaster accuracy is affected by a variety of 

factors, and indicators are difficult to project for a variety 

of different reasons. For example, the errors in forecasts of 

output are particularly sensitive to cyclical movements in 

the economy, whereas those for inflation are influenced 

by sudden movements in prices for crude oil. 

Output

CBO’s forecasts of real and nominal output growth were 

similar to the Blue Chip consensus forecasts in terms of 

both bias and accuracy; although they were similar to 

the Administration’s forecasts in terms of accuracy, they 

differed in terms of bias.23 CBO and the Blue Chip consensus underestimated real output growth, on average, 

whereas the Administration tended to overestimate it. All 

three forecasters overestimated nominal output growth, 

on average, but the Administration did so to a greater 

degree. The accuracy of all three sets of forecasts of the 

growth of real and nominal output was similar. 

22. Tables showing the errors of each forecast are available as 

supplemental material on CBO’s website (www.cbo.gov/

publication/53090).

23. Before 1992, CBO, the Administration, and the Blue Chip

consensus forecast output as measured by gross national product 

(GNP); since 1992, they have forecast output as measured by 

GDP. Unlike the more commonly cited GDP, GNP includes the 

income that U.S. residents earn abroad and excludes the income 

that foreigners earn in this country. 

Errors in projecting real output growth reveal forecasters’ difficulty anticipating turning points in the business cycle and changing trends in productivity growth. 

Forecasts of nominal output growth are subject to those 

same difficulties and are affected by errors in projecting 

inflation as well. 

Growth of Real Output. CBO and the Blue Chip consensus tended to underestimate the growth of real output, whereas the Administration tended to overestimate 

it. Nonetheless, the accuracy of all three forecasters was 

similar. They all tended to significantly overestimate real 

output around recessions. All three forecasters made their 

largest forecast errors during the 2007–2009 recession, 

although CBO did a better job than the other two did 

of predicting the relative weakness of the recovery that 

followed (see Figure 7). 

Errors in forecasts of real output growth primarily arise 

from two sources: cyclical movements in the economy 

and changes in the growth rate of productivity. Cyclical 

movements are difficult to anticipate, so forecasters typically generate larger errors when the economy is entering 

a recession. Changes in the trend of productivity growth 

contribute to persistent misestimates of future real 

output growth because forecasters are able to detect such 

changes only well after they have occurred. 

In the late 1970s, CBO and the Administration appear 

to have expected productivity growth to move back 

toward its earlier post–World War II trend. That expectation contributed to their overly optimistic forecasts 

of the growth of real output. Early in 1980, CBO, the 

Administration, and the Blue Chip consensus anticipated 

the coming recession, and consequently, they produced 

relatively accurate forecasts that year. They did not, 

however, anticipate that a second recession would follow 

so soon thereafter. They missed the beginning of the 

1981–1982 recession and were unaware of how deep it 

would be, so the forecasts of real output they made in 

those two years were too high. 

In 1983 and 1984, the economy recovered quickly 

from the 1981–1982 recession, and real output grew 

faster than CBO, the Administration, or the Blue Chip 

consensus expected. In forecasts prepared during the 

1983–1989 expansion, CBO and the Blue Chip consensus underestimated real output growth by roughly 1 percentage point per year, on average; the Administration 

also underestimated real output growth, but by notably 
16 CBO’s Economic Forecasting Record: 2017 Update October 2017

Box 2.

Comparison of CBO’s and the Federal Reserve’s Two-Year Forecasts

Errors in Forecasts of the Growth of Real Output 

Percentage Points

-3

-2

-1

0

1

2

3

4

Federal

Reserve

CBO a

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Sources: Congressional Budget Office; Federal Reserve; Bureau of Labor Statistics; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots 

shown on the horizontal axis indicate that the two-year forecast period overlapped a recession by six months or more.

Forecast errors are projected values minus actual values; thus, a positive error is an overestimate. In the left panel, errors are shown for 

forecasts of the average annual growth rate of real (inflation-adjusted) output over the two-year forecast period. Output is either GDP or (before 

1992) GNP. In the right panel, errors are shown for forecasts of the average annual growth rate of consumer prices over the two-year forecast 

period. The CPI was forecast through 2011; the price index for personal consumption expenditures has been forecast since 2012. For details on 

the underlying data, see the appendix.

Continued

Like the Administration’s forecasts and the Blue Chip consensus, the Federal Reserve’s forecasts provide an informative 

point of comparison when evaluating the Congressional 

Budget Office’s forecasts. But the Federal Reserve does not 

release forecasts of Treasury interest rates or of wages and 

salaries, nor does it publish any five-year forecasts. Therefore, 

CBO did not include the Federal Reserve’s forecasts in the 

principal analysis for this report. The Federal Reserve does, 

however, publish timely two-year forecasts of real output 

growth and inflation rates, which can be compared with CBO’s 

forecasts of those variables. 

The Federal Reserve’s forecasts differ from CBO’s forecasts in 

two ways.1 First, the Federal Reserve’s forecasts include the 

effects of anticipated changes in fiscal policy, whereas CBO’s 

1. For a detailed description of the Federal Reserve’s forecasts, see David 

Reifschneider and Peter Tulip, Gauging the Uncertainty of the Economic 

Outlook Using Historical Forecasting Errors: The Federal Reserve’s 

Approach, Finance and Economics Discussion Series Paper 2017-020 

(Board of Governors of the Federal Reserve System, February 2017), 

https://doi.org/10.17016/FEDS.2017.020 (PDF, 404 KB).

forecasts reflect the assumption that current laws governing 

fiscal policy will remain generally unchanged. Second, the 

Federal Reserve’s forecasts published in recent years are 

modal forecasts—that is, they represent the single most 

likely outcome for the economy. By contrast, CBO’s forecasts represent the middle of a range of possible economic 

outcomes. In periods when the range of possible outcomes 

is highly skewed, the Federal Reserve’s forecasts will differ 

from CBO’s. For example, Federal Reserve officials might view 

the most likely outcome for the economy to be rapid growth, 

but if there is considerable risk that actual growth might be 

significantly less than projected, CBO’s forecast—represents 

the middle of the distribution of possible outcomes—might be 

for slower growth than the Federal Reserve’s modal forecast.

CBO’s and the Federal Reserve’s two-year forecasts of the 

growth of real output have, for the most part, been similar 

(see the figure below). The most notable divergences were 

in forecasts made in the early 1980s and between 2010 and 

2012. Before the 1980 recession, CBO produced a fairly 

accurate forecast of real output growth, whereas Federal 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 17

Box 2. Continued

Comparison of CBO’s and the Federal Reserve’s Two-Year Forecasts

Errors in Forecasts of Consumer Price Inflation

Percentage Points

-4

-2

0

2

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Federal

Reservea

CBO

Beginning with 1986 for inflation and 2012 for output, growth rates are based on the quarterly growth rates over the two-year forecast period.

The most recent forecasts included are those published in 2014. The Federal Reserve first published a two-year forecast of real output in 1979 

and of consumer prices in 1980.

CPI = consumer price index; GDP = gross domestic product; GNP = gross national product.

a. Forecasts prepared by the staff of the Board of Governors of the Federal Reserve System are reported with a five-year lag and are therefore 

available only through 2011. For the forecasts made between 2012 and 2014, the shaded area represents the central tendencies of Federal 

Reserve officials’ forecasts—that is, the range of estimates formed by removing the three highest and three lowest forecasts reported by the 

members of the Board of Governors and the presidents of the Federal Reserve Banks. 

Reserve officials overestimated the depth of the coming 

recession. However, because CBO failed to anticipate the 

start of the 1981–1982 recession and, after it had begun, 

how deep it would be, the agency overestimated growth in 

real output in its 1981 and 1982 forecasts. Federal Reserve 

officials more accurately forecast the downturn. In 2010, CBO 

correctly anticipated that the economic recovery following the 

2007–2009 recession would continue to be slow; however, 

as required by law, the agency assumed that certain tax 

provisions scheduled to expire would do so and add to fiscal 

restraint, but those provisions were subsequently extended.2

By contrast, Federal Reserve officials considerably overestimated growth. The underestimate of output growth in 

CBO’s 2012 forecast reflects, in part, the extension of certain 

expiring tax provisions, which significantly reduced the 

2. When CBO prepared its forecast in early 2010, several tax provisions 

were set to expire at the end of the calendar year. Most of those 

provisions were originally enacted in the Economic Growth and Tax 

Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief 

Reconciliation Act of 2003.

amount of fiscal restraint below the amount reflected in CBO’s 

current-law projection. Federal Reserve officials, by contrast, 

overestimated growth in 2012. In 2013 and 2014, CBO’s and 

the Federal Reserve’s forecast errors were similar. 

In general, CBO and the Federal Reserve also had similar forecasts of inflation (see the figure below). Forecasts prepared 

between 2001 and 2005, however, were exceptions. In early 

2001, CBO overestimated growth in consumer prices in its 

two-year forecast, largely because it did not anticipate the 

2001 recession. The Federal Reserve’s forecast from that year 

showed little error. Between 2003 and 2005, both forecasters underestimated inflation rates, but the Federal Reserve’s 

errors were somewhat larger. From 2006 to 2011, the two 

agencies’ inflation forecasts were once again similar. For forecasts made between 2012 and 2014, errors in CBO’s estimates 

of inflation were comparable to the smallest errors produced 

by the Federal Reserve’s central tendency—that is, the range 

of estimates formed by removing the three highest and three 

lowest estimates made by Federal Reserve officials.
18 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 7.

Growth of Real Output: Two-Year Forecasts

-4

-2

0

2

4

6

CBO

Administration

Blue Chip

Consensus

Percentage Points

Two-Year Forecast Period

Forecast Error (Forecast Minus Actual)

-2

0

2

4

6

8

Percent

CBO

Actual

Comparison of CBO’s Forecast and Actual Annual Growth

Underestimate

Overestimate

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of real (inflation-adjusted) output over the two-year forecast period. Output is either 

GDP or (before 1992) GNP. 

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of real output was published in 1980.

GDP = gross domestic product; GNP = gross national product.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 19

smaller amounts, particularly during the latter half of the 

decade. 

The 1990–1991 recession resulted in the forecasters’ 

overestimating real output growth in their 1990 forecasts. Even so, the errors by CBO and the Blue Chip consensus that year were actually smaller than the RMSEs 

for the forecasts made between 1980 and 2014. By 

contrast, the Administration’s forecast error that year was 

considerably larger than its RMSE for the whole period.

In every year between 1992 and 1999, all the forecasters underestimated two-year growth in real output. The 

errors were particularly large for the two-year forecasts 

made between 1996 and 1999. About one-fourth of the 

magnitude of those errors is attributable to subsequent 

revisions—including important changes to definitions—

that BEA made to the national income and product 

accounts (NIPAs). Those revisions aside, the significant 

underestimates made between 1996 and 1999 resulted 

from forecasters’ failure to anticipate several important 

economic developments. One such development was 

the investment boom of the late 1990s, which increased 

capital stock and thereby boosted labor productivity and 

real output more than many forecasters had expected.

When preparing their projections in 2001, forecasters 

did not anticipate the recession that occurred later that 

year. CBO and the Blue Chip consensus overestimated 

the growth of real output by similar amounts, and the 

Administration overestimated it by a slightly larger 

amount. Following the recession, the economy underwent an unusually slow recovery and weak expansion. 

Between 2004 and 2006, all three forecasters’ expectations for real output growth proved to be too optimistic; 

however, the errors in the Administration’s forecasts and 

Blue Chip consensus forecasts were smaller than those 

in the forecasts that CBO made during those years. 

Perhaps contributing to the overestimates, rising energy 

prices (unanticipated by many forecasters) dampened the 

growth of real GDP by roughly a quarter of a percentage 

point in 2004, by less than half of a percentage point 

in 2005, and by about a quarter of a percentage point 

during the first half of 2006.24

In 2007 and 2008, forecasters failed to appreciate the 

effect of the growing imbalances in the housing and 

24. See Congressional Budget Office, The Economic Effects of Recent 

Increases in Energy Prices (July 2006), p. 6, www.cbo.gov/

publication/17984.

financial markets. During the early 2000s, real output 

growth was partly supported by a boom in residential 

construction, which was fueled by a growing bubble 

in house prices. By 2007, a downturn in the housing 

market was apparent, and tensions in financial markets 

began to rise. Despite those tensions, in early 2008 forecasters expected that the U.S. economy would avoid falling into recession. For example, in January 2008, CBO 

stated, “If a severe credit crunch did occur, it would 

drive the economy into recession by significantly curbing financial activity and consumer spending. However, 

CBO assumes in its forecast that the Federal Reserve will 

implement policies to prevent such a crunch and that the 

financial sector is capable of absorbing most of the losses 

it faces.”25 Those expectations proved to be incorrect: In 

2008, forecasts by CBO, the Administration, and the 

Blue Chip consensus overestimated real output growth by 

at least 33⁄4 percentage points.

Despite the unusually weak recovery from the 2007–

2009 recession, the two-year forecasts of real output 

growth that CBO made from 2009 to 2013 were 

relatively accurate compared with the Administration’s 

projections and the Blue Chip consensus forecasts from 

those years and compared with the agency’s own forecasts 

made over the entire 1980–2014 period. Whereas the 

Administration and the Blue Chip consensus consistently 

overestimated future growth in real output during the 

recovery, CBO’s projections were relatively close to actual 

growth, with one notable exception—in 2011, CBO significantly overestimated real output growth, though even 

then, it did so by less than the other forecasters. 

One source of divergence between CBO’s forecasts and 

the other forecasts during the years immediately following the most recent recession was the forecasters’ different fiscal policy assumptions. In early 2009, contributors 

to the Blue Chip consensus reported that they expected 

additional fiscal stimulus, which implied stronger output 

growth than would be expected under current law.26

CBO’s growth projections were thus tempered by the 

requirement that its forecasts reflect current law. In the 

end, fiscal stimulus was weaker than those private forecasters had predicted—as was the underlying momentum in the economy—making CBO’s forecast more 

25. See Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2008 to 2018 (January 2008), p. 23, www.

cbo.gov/publication/41661.

26. See Congressional Budget Office, The Budget and Economic 

Outlook: Fiscal Years 2009 to 2019 (January 2009), pp. 10–11, 

www.cbo.gov/publication/41753.
20 CBO’s Economic Forecasting Record: 2017 Update October 2017

accurate than the Blue Chip consensus. When preparing 

its forecast in 2010, CBO assumed that expiring tax 

provisions would result in additional fiscal restraint, but 

those provisions were subsequently extended.27

The forecasts that CBO made in 2012 and 2013 were 

fairly accurate, especially compared with the Administration’s, but in 2014, all forecasters overestimated real 

output growth by a moderate amount.

Growth of Nominal Output. Differences between errors 

in forecasts of the growth of real and nominal output 

reflect inaccuracies in projections of inflation in the 

output price index. (The two indexes that CBO uses 

to measure inflation are discussed in the next section.) 

Because all the forecasters overestimated future inflation, 

their forecasts of nominal output growth exhibit more 

upward bias, as measured by the mean error, than do 

their projections of real output growth. All the forecasters’ projections of nominal output growth were slightly 

less accurate than their projections of real output growth 

(see Figure 8).

During the 1980s and 1990s, CBO, the Administration, 

and the Blue Chip consensus tended to overestimate 

inflation, partially offsetting their underestimates of real 

output growth. Consequently, their forecasts of nominal 

output growth exhibited less bias over that period than 

did their forecasts of real output growth. 

During much of the 2000s, all the forecasters tended 

to underestimate inflation rates. Those underestimates 

generally offset their overestimates of real output growth. 

However, the forecasts prepared in 2008 were a notable 

exception. Early that year, all the forecasters expected 

that a recession would be avoided, and they therefore 

overestimated both inflation and real output growth. 

As a result, in that year’s forecasts, estimates of nominal 

output growth were between 4 percentage points and 

5 percentage points too high. Since the recession, CBO 

has slightly underestimated nominal output, on average, 

because it has underestimated inflation. By contrast, the 

Blue Chip consensus and the Administration’s forecasts of 

27. At the time, several tax provisions—most of which were 

originally enacted in the Economic Growth and Tax Relief 

Reconciliation Act of 2001 and the Jobs and Growth Tax 

Relief Reconciliation Act of 2003—were due to expire at the end 

of December 2010. See Congressional Budget Office, The Budget 

and Economic Outlook: Fiscal Years 2010 to 2020 (January 2010), 

p. 1, www.cbo.gov/publication/41880.

nominal output have consistently erred on the high side 

throughout that same period, mostly because the Blue 

Chip consensus and the Administration anticipated that 

real output growth would be higher than it was. 

Inflation

Inflation is the increase in the average price of a broad 

basket of goods or services and is measured as the 

percentage change in a general price index. From 1981 

to 2014, inflation forecasts were relatively accurate and 

exhibited only a small upward bias. But during the 

unusually volatile period of the late 1970s (before the 

first full Blue Chip consensus forecast was published), 

CBO and the Administration substantially underestimated inflation. Since the mid-1980s, inflation has 

stabilized, and forecasting accuracy has improved.

CBO’s evaluation of inflation forecasts focuses on two 

measures: the percentage change in the CPI and the difference between that measure and the percentage change 

in the price index for output.The CPI measures inflation 

in the prices of a fixed group of consumer goods and services.28 The output price index measures the prices of all 

goods and services that make up GDP (or, before 1992, 

gross national product [GNP]).

Inflation in the CPI and inflation in the output price 

index affect federal outlays and revenues differently. All 

else being equal, higher inflation in the CPI implies 

faster growth in outlays and slower growth in revenues. 

Inflation in the CPI increases federal outlays because the 

index is used to adjust payments to Social Security beneficiaries as well as payments made under other programs, 

such as civil service retirement. Since the mid-1980s, 

elements of the individual income tax—including the tax 

brackets—have also been indexed to the CPI, so inflation 

in the index reduces revenues. By contrast, growth in the 

output price index, which is closely linked to growth in 

nominal income subject to federal taxes, implies faster 

28. In most of the years examined here, the inflation forecasts are 

for the CPI-U, which measures inflation in the prices of goods 

and services consumed by all urban consumers. Some forecasts, 

however, were for the CPI-W, which measures inflation in the 

prices of goods and services consumed by urban wage earners and 

clerical workers. CBO forecast the CPI-W from 1976 to 1978 

and again from 1986 to 1989; the Administration forecast the 

CPI-W through 1991. For the purpose of this evaluation, the 

distinction between the two measures was most consequential 

in 1984, when inflation in the CPI-U and CPI-W diverged by 

0.9 percentage points.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 21

Figure 8.

Growth of Nominal Output: Two-Year Forecasts

CBO

Administration

Blue Chip

Consensus

Percentage Points Forecast Error (Forecast Minus Actual)

-4

-2

0

2

4

6

Percent

CBO

Actual

Comparison of CBO’s Forecast and Actual Annual Growth

Underestimate

Overestimate

-4

0

4

8

12

16

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of nominal output over the two-year forecast period. Output is either GDP or (before 

1992) GNP.

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of nominal output was published in 1980.

GDP = gross domestic product; GNP = gross national product.
22 CBO’s Economic Forecasting Record: 2017 Update October 2017

growth in revenues. Consequently, if the output price 

index was forecast to grow more slowly than the CPI, 

the projected deficit would generally be larger than if the 

reverse was forecast.

The errors in forecasts of inflation—particularly those of 

inflation in the CPI—have generally reflected turbulence 

in crude oil prices. For example, rapidly rising oil prices 

contributed to forecasters’ significantly underestimating 

inflation when making their projections in the late 1970s 

and mid-2000s. The dramatic (and largely unexpected) 

decline in inflation that began during the deep recession 

in the early 1980s also contributed to errors in inflation forecasts. Forecasters only gradually recognized the 

extent of that decline and thus drastically overestimated 

price growth during much of the decade.

Inflation in the CPI. Although errors in forecasts of 

most economic indicators were largest during recessions, 

that pattern is not as pronounced for inflation forecasts. 

After the volatile period of the late 1970s and early 

1980s, inflation was relatively stable, and the accuracy of 

all three sets of forecasts of inflation improved. Errors in 

inflation forecasts have been relatively small in the past 

two decades compared with errors in earlier projections 

of inflation and with those in forecasts of most other 

indicators. 

During the late 1970s, CBO and the Administration 

made large errors when forecasting CPI inflation (see 

Figure 9). Primarily because of the spike in crude oil 

prices in 1979 and 1980, they underestimated inflation 

in the forecasts they prepared in 1978 and 1979 by 

about 4 percentage points, on average.

In the forecasts they made between 1981 and 1986, 

CBO and the Administration overestimated inflation in 

the CPI by 1.5 percentage points, on average, whereas 

the Blue Chip consensus overestimated it by an average of 

1.8 percentage points. The overestimates largely stemmed 

from the fact that forecasters did not anticipate the sharp 

and lasting decline in the rate of inflation that followed 

the 1981–1982 recession. They also did not foresee the 

drop in crude oil prices that occurred in early 1986. 

Between 1987 and 2003, CBO, the Administration, and 

the Blue Chip consensus made relatively small errors: The 

RMSE of each set of forecasts was roughly one-half of a 

percentage point. Inflation forecasts probably benefited 

from the relatively benign economic environment—in 

contrast to the turbulent late 1970s and early 1980s—

that existed during most of that period. Growth in the 

CPI remained within a narrow range during those years, 

particularly after 1990. 

Between 2004 and 2007, the forecasters persistently 

underestimated inflation in the CPI, largely because of 

the unexpected rise in crude oil prices. The two-year 

forecasts of inflation were about 1 percentage point 

below actual rates, on average. 

In 2008, CBO, the Administration, and the Blue Chip

consensus failed to anticipate the 2007–2009 recession 

and the downward pressure that it would place on consumer price growth. As a result, CBO and the Administration overestimated inflation slightly, and the Blue Chip

consensus overestimated it by a slightly larger amount. 

All of the forecasters’ 2009 projections showed a decline 

in inflation close to what actually occurred, but the 

estimates of inflation in their 2010 and 2011 projections 

were too low, partly because of an unexpected increase 

in the price of energy. The inflation forecasts that CBO 

made in 2012 and 2013 were relatively close to the 

actual inflation rates. In their 2014 forecasts, CBO, the 

Administration, and the Blue Chip consensus significantly overestimated inflation because of the sudden 

drop in oil prices that occurred in 2014 and 2015. 

Difference Between Inflation Measures. Errors in forecasts of the difference between inflation measures follow 

a pattern somewhat similar to that of the CPI forecast 

errors. But because the output price index is more 

directly related to projections of output than the CPI is, 

the errors in forecasts of the output price index tend to 

increase more during recessions than the errors in CPI 

forecasts do. All three sets of forecasts of the difference 

between the two measures tended to be too low, meaning 

that CPI actually grew faster in relation to the output 

price deflator than projected. 

In the forecasts they made between 1978 and 1980, 

CBO and the Administration underestimated the difference in inflation measures by more than 2 percentage 

points, on average (see Figure 10). In 1979 and 1980, 

the difference between inflation in the CPI and the GNP 

price index spiked to its highest levels since the end of 

World War II. A significant portion of the divergence 

can be explained by the oil price shock. A surge in oil 

prices has a larger effect on the CPI than on the output 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 23

Figure 9.

Inflation in the Consumer Price Index: Two-Year Forecasts

CBO

Administration

Blue Chip

Consensus

Percentage Points Forecast Error (Forecast Minus Actual)

-6

-4

-2

0

2

4

Percent

CBO

Actual

Comparison of CBO’s Forecast and Actual Annual Inflation

Underestimate

Overestimate

0

2

4

6

8

10

12

14

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of the CPI over the two-year forecast period. Most of the forecasts represented here 

were for the CPI-U, but some were for the CPI-W. For details on the underlying data, see the appendix. 

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of the CPI was published in 1981.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.
24 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 10.

Difference Between Inflation in the CPI and in the Output Price Index: Two-Year Forecasts

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

-4

-3

-2

-1

0

1

Blue Chip

Consensus

Percentage Points

CBO

Actual

Comparison of CBO’s Forecast and Actual Dierence

Underestimate

Overestimate

-1

0

1

2

3

4

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics; 

Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show average annual growth in the CPI over the two-year forecast period minus average annual growth in the output price 

index over that period. In most of the forecasts represented here, the CPI-U was projected, but in some, the CPI-W was forecast. The output price index 

measures the prices of all goods and services that make up either GDP or (before 1992) GNP. For details on the underlying data, see the appendix. 

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of the CPI was published in 1981.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers; 

GDP = gross domestic product; GNP = gross national product.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 25

price index because petroleum products are a much 

larger share of households’ out-of-pocket expenditures 

than of total output in the economy. 

Underestimates of the difference between inflation 

measures in forecasts made before 2000 partly reflect 

the methodological change to the national income and 

product accounts that BEA made in 1999. That year the 

agency began to treat business and government purchases of software as investment and thus to include such 

spending in its calculations of GDP. Because the price 

of software grew much less rapidly, on average, than 

other prices, the change in the classification of spending on software resulted in a downward revision to the 

historical data on the growth in the output price index. 

Hence, the forecasts made before 2000 were based on 

a pattern of historical growth in the output price index 

that was higher than such growth is currently reported to 

have been. That difference probably accounts for about 

0.2 percentage points—or two-fifths—of the apparent 

bias in forecasts from that period.

In 2000, all three forecasters’ projections of the difference between the inflation measures were very accurate, 

but between 2001 and 2006, their forecasts were typically too high. Forecasters did not anticipate the large 

declines in the difference between the measures that 

occurred in 2001 and 2002. The declines stemmed from 

two developments—the slowdown in inflation in energy 

prices and the reduction in inflationary pressures that 

followed the 2001 recession. Those two developments 

caused growth in the CPI to slow more than growth in 

the output price index through 2002. From 2003 to 

2006, forecasters continued to overestimate the difference between the measures.

The sharp increase in the difference between the inflation 

measures in 2008 caught CBO, the Administration, and 

the Blue Chip consensus by surprise. As a consequence, 

the absolute values of the errors in their 2007 forecasts were among the largest of the forecast errors since 

the late 1970s. Despite the volatility in the difference 

between measures in 2009 and 2010, forecasts made 

in those years were fairly accurate. Errors were slightly 

larger in the next three years’ forecasts, but not notably 

so. In 2014, CBO and other forecasters failed to anticipate that the output price index would continue to grow 

faster than the CPI—an unusual trend that was related 

to the sudden drop in oil prices in 2014 and 2015. 

Interest Rates

Between 1981 and 2014, CBO’s and the Administration’s projections of interest rates, along with the Blue 

Chip consensus forecasts, were too high, on average. Of 

the three sets, the Administration’s forecasts were the 

least biased over the period because large negative errors 

in the forecasts that it prepared in the late 1980s partly 

offset positive errors in its forecasts from other periods, 

particularly the 2000s. Measured by the RMSE, CBO’s 

interest rate forecasts were about as accurate as those of 

the Administration and the Blue Chip consensus. The 

forecasts of interest rates produced by CBO and the Blue 

Chip consensus have, however, tended to be more biased 

than their forecasts of other economic indicators. In 

general, forecasters have been surprised by the persistent 

decline in interest rates over the past three decades. 

CBO’s forecasts of interest rates on Treasury securities 

underlie its projections of payments on federal debt and 

other components of the budget. The forecasts evaluated 

here are for two key rates—a short-term rate (the rate on 

3-month Treasury bills) and a long-term rate (the rate 

on 10-year Treasury notes).29 CBO evaluated forecasts 

of the interest rate on 3-month Treasury bills in both 

nominal and real terms. The nominal rate of interest is 

the rate quoted in the secondary market. The real interest 

rate equals the nominal rate minus inflation in the CPI. 

Errors in forecasts of the real interest rate reflect errors 

in forecasts of both the nominal interest rate and the 

inflation rate.

For forecasts of the 3-month Treasury bill rate, the largest 

errors have tended to occur during downturns in the 

business cycle. Short-term interest rates tend to move 

down when the economy enters a recession. Just as recessions are difficult to anticipate, so too are movements in 

short-term interest rates. Changes to monetary policy 

29. Forecasters have projected different interest rates through the 

years, so the specific rates used for this evaluation vary slightly 

in some years. The Administration forecast the rate on newly 

issued bills through 2000, and the Blue Chip consensus forecast 

the rate from 1982 to 1985 and from 1992 to 1997. In 1981, 

the only short-term rate available for the Blue Chip consensus 

was the 6-month commercial paper rate. CBO did not forecast 

the rate on 10-year notes in 1984 or 1985, and the Blue Chip 

consensus did not include forecasts of the rate between 1984 and 

1995. However, for the sake of simplicity, this report refers to the 

rate on 10-year Treasury notes even when discussing those years’ 

forecasts. Forecasts of the Moody’s Aaa corporate bond rate were 

used as a substitute for forecasts of the 10-year Treasury note rate 

in the years when the Treasury rate was not forecast.
26 CBO’s Economic Forecasting Record: 2017 Update October 2017

made in response to recessions are a primary contributor 

to errors in forecasting short-term interest rates. Typically, when the economy enters a recession, inflation falls 

and unemployment rises, prompting the Federal Reserve 

to stimulate demand by lowering short-term interest 

rates. 

The errors in forecasting the 10-year Treasury note rate 

have tended to be less related to turning points in the 

business cycle than to the gradual and mostly unanticipated decline in long-term interest rates that began in 

the early 1980s. Several factors have contributed to the 

decline in long-term interest rates, including slowdowns 

in labor force and productivity growth and a decline in 

the term premium.30

In addition, changes in expectations of inflation, stronger than anticipated demand for Treasury securities by 

foreign purchasers, and changes in the amount of federal 

debt held by the public have contributed to errors in 

forecasting both short-term and long-term interest rates.

Interest Rate on 3-Month Treasury Bills. Between 1981 

and 2014, forecasts of nominal interest rates on 3-month 

Treasury bills exhibited notable upward bias. CBO and 

the Blue Chip consensus overestimated nominal interest 

rates, on average; the Administration did as well, but its 

forecasts had slightly less of an upward bias. In part, that 

bias stemmed from forecasters’ tendency to overestimate 

inflation rates between 1981 and 1998. All three sets 

of forecasts were comparable in terms of accuracy; the 

Administration’s forecasts were less biased only because 

large underestimates in the late 1980s somewhat offset 

overestimates in other periods. Errors in forecasts of real 

interest rates follow a pattern similar to that of errors in 

nominal interest rates, but they are further affected by 

errors in projecting growth in the CPI. Sometimes the 

two types of errors worked in opposite directions, making the forecast of the real interest rate more accurate, 

and sometimes errors in forecasts of growth in the CPI 

exacerbated errors in forecasts of the nominal interest 

rate.

In the forecasts they prepared in 1978 and 1979, both 

CBO and the Administration underestimated the 

30. For more on factors contributing to the decline in long-term 

interest rates, see Congressional Budget Office, The Budget and 

Economic Outlook: 2017 to 2027 (January 2017), www.cbo.gov/

publication/52370.

nominal interest rate on 3-month Treasury bills by about 

21⁄2 percentage points, on average (see Figure 11). Those 

errors stemmed entirely from the forecasters’ underestimating inflation rates during that period. In fact, 

CBO and the Administration overestimated real interest 

rates by more than 11⁄4 percentage points, on average, in 

those years (see Figure 12). Those overestimates may be 

the result of the forecasters’ overly optimistic projections 

of real output growth during the period.

During the early 1980s, the Federal Reserve raised 

interest rates, which contributed to two recessions in 

close succession and, ultimately, to a sharp and lasting 

reduction in the rate of inflation. In 1980 and 1981, 

many forecasters did not fully anticipate that prolonged 

period of restraint in monetary policy or its impact on 

price growth. In their 1980 forecasts, CBO and the 

Administration underestimated both nominal and real 

interest rates, suggesting that monetary policy proved to 

be tighter than either expected over the next two years. 

In 1981, CBO overestimated nominal interest rates, but 

because it also overestimated inflation, the agency underestimated real interest rates; the Administration and the 

Blue Chip consensus underestimated both nominal and 

real interest rates that year.

Although all three sets of forecasts were less biased during 

the rest of the 1980s, they exhibited a notable upward 

bias after 1990, mainly because in the wake of a recession, forecasters tend to underestimate the extent and 

duration of the easing of monetary policy. In early 1991 

and 1992, forecasters expected interest rates to begin 

rising as the economy recovered from the 1990–1991 

recession, but the recovery was unexpectedly weak, and 

inflation remained low. In response, the Federal Reserve 

continued to ease monetary policy for several years, 

pushing down the nominal interest rate on 3-month 

Treasury bills from nearly 8 percent in the first half of 

1990 to 3 percent in 1993. In the forecasts published 

between 2000 and 2011, CBO, the Administration, and 

the Blue Chip consensus overestimated real interest rates 

by more than 11⁄4 percentage points, on average, and 

nominal interest rates by slightly less. Some of that bias 

can be attributed to the 2001 and 2007–2009 recessions 

and the surprisingly sluggish recoveries that followed 

them. But some of that bias is due to the largely unanticipated persistent downward trend in interest rates. 

CBO’s 2012 and 2013 forecasts of negative real interest 

rates proved to be fairly accurate, but the estimated rate 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 27

Figure 11.

Interest Rate on 3-Month Treasury Bills: Two-Year Forecasts

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

-4

-2

0

2

4

CBO

Percent Comparison of CBO’s Forecast and Actual Interest Rate

CBO

Actual

Underestimate

Overestimate

0

4

8

12

16

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Federal Reserve; Bureau of 

the Public Debt.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual interest rate over the two-year forecast period. Most of the forecasts represented here were for 

the secondary-market interest rate, but some were for the rate on newly issued bills or for the 6-month commercial paper rate. For details on the 

underlying data, see the appendix.

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of short-term interest rates was 

published in 1981.
28 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 12.

Real Interest Rate on 3-Month Treasury Bills: Two-Year Forecasts

Percentage Points Forecast Error (Forecast Minus Actual)

-4

-2

0

2

4

Administration Blue Chip

Consensus

CBO

Two-Year Forecast Period

Percent Comparison of CBO’s Forecast and Actual Interest Rate

CBO

Actual

Underestimate

Overestimate

-4

-2

0

2

4

6

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics; 

Federal Reserve; Bureau of the Public Debt.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average nominal annual interest rate over the two-year forecast period deflated by the growth in the CPI over that 

period. Most of the forecasts represented here were for the secondary-market interest rate, but some were for the rate on newly issued bills or for the 

6-month commercial paper rate. In most cases, the CPI-U was used as the deflator, but in some, the CPI-W was used. For details on the underlying data, 

see the appendix. 

The most recent forecasts included are those published in 2014. The first two-year Blue Chip consensus forecast of short-term interest rates was 

published in 1981.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 29

in its 2014 forecast—like the rates in the Administration’s forecast and the Blue Chip consensus that year—

was slightly below the actual rate. 

Interest Rate on 10-Year Treasury Notes. Between 1984 

and 2014, CBO and the Blue Chip consensus tended 

to overestimate the nominal interest rate on 10-year 

Treasury notes by similar amounts; the Administration’s 

forecasts were slightly less biased (see Figure 13). Large 

negative errors in the forecasts that the Administration 

made in the late 1980s and early 1990s offset positive 

errors in the forecasts it prepared during other periods, 

particularly the 2000s. As measured by the RMSE, all 

the forecasters had a similar degree of accuracy. 

Between 2000 and 2008, CBO, the Administration, 

and the Blue Chip consensus persistently overestimated 

the nominal interest rate on 10-year Treasury notes (by 

0.7 percentage points, on average). To some extent, those 

errors were related to the recessions in 2001 and from 

2007 to 2009. However, even during the expansion that 

occurred between the two recessions, long-term interest 

rates continued to decline because of slow growth in the 

labor force, a declining term premium, strong foreign 

demand for Treasury securities, and, toward the end of 

that period, a slowdown in productivity growth. All three 

forecasters were largely surprised by the effect of those 

trends on interest rates.

By 2009, all of the forecasters had revised their expectations for interest rates downward. For that reason, 

the forecasts of the rate for 10-year Treasury notes that 

they made that year were relatively accurate, deviating 

from actual interest rates by less than one-quarter of a 

percentage point. 

After the 2007–2009 recession ended, forecasters 

expected long-term interest rates to rise, but they 

continued to decline over the next two years, especially 

in 2011. From 2010 to 2012, CBO overestimated the 

interest rate on 10-year Treasury notes by 0.8 percentage points, on average; the Administration and the Blue 

Chip consensus overestimated that rate by 1.1 percentage 

points, on average. CBO’s 2013 forecast of long-term 

interest rates was relatively accurate, but the agency’s 

2014 forecast proved too high when, contrary to expectations, interest rates stayed low. 

Wages and Salaries

Between 1980 and 2014, CBO and the Administration overestimated the growth of wages and salaries, 

on average. (Because the Blue Chip consensus does not 

include forecasts of wages and salaries, only CBO’s 

and the Administration’s forecasts are discussed in this 

section.) CBO’s forecasts were less biased than those of 

the Administration, but that is mostly due to bias in the 

Administration’s forecasts of nominal output growth—

both forecasters’ projections of wages and salaries measured as a percentage of output were essentially unbiased. 

The two forecasters’ accuracy was similar for projections 

of the growth of wages and salaries and projections of the 

change in wages and salaries as a percentage of output. 

Projections of federal revenues depend significantly on 

forecasts of wages and salaries, which are a major component of taxable income.31 Errors in forecasts of wages 

and salaries may result from inaccurate forecasts of these 

items: 

■ Output. Wages and salaries generally grow with 

overall economic activity and inflation. A forecaster 

that failed to anticipate a downturn in output growth 

would probably overestimate growth in wages and 

salaries as well.

■ The statistical discrepancy between GDP and gross 

domestic income (GDI, the income earned in the 

production of GDP).In principle, GDP and 

GDI should be equal, but in practice, they differ 

because BEA uses a different set of primary sources 

to estimate each of them. To project GDI, of 

which wages and salaries is the largest component, 

forecasters must also project the statistical 

discrepancy, which is difficult to do because the 

discrepancy stems from imperfect methods of data 

collection and estimation. As a result, unexpected 

swings in the discrepancy may raise or lower wages 

and salaries in relation to GDP. 

31. In some earlier editions of this report, CBO included an analysis 

of its forecast of a broader category of taxable income: the sum 

of wages and salaries and corporate book profits. That sum has 

been dropped from this analysis because legislative changes to the 

tax rules governing corporations can affect book profits, and they 

have increasingly done so, which makes it difficult to identify 

the economic forecast errors. Wages and salaries are less directly 

affected by legislation.
30 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 13.

Interest Rate on 10-Year Treasury Notes: Two-Year Forecasts

Percentage Points Forecast Error (Forecast Minus Actual)

Administration

Blue Chip

Consensus

CBO

-2

-1

0

1

2

Percent Comparison of CBO’s Forecast and Actual Interest Rate

CBO

Actual

Underestimate

Overestimate

0

2

4

6

8

10

12

14

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Federal Reserve.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual interest rate over the two-year forecast period. CBO did not forecast the interest rate on 10-year 

Treasury notes in 1984 or 1985, and the Blue Chip consensus did not include forecasts of the rate from 1984 to 1995. In those cases, the forecaster’s 

projections of the Moody’s Aaa corporate bond rate were used as a substitute.

Data are for forecasts made between 1984 and 2014.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 31

■ Income shares. Income shares refer to the percentage of 

each type of income in GDI.32 Unexpected shifts in 

the composition of income may cause sizable errors in 

forecasts of wages and salaries. 

Growth of Wages and Salaries. Between 1980 and 2014, 

CBO and the Administration slightly overestimated the 

growth of wages and salaries, on average, and the accuracy of their forecasts was similar (see Figure 14). The 

directions of the errors in the forecasts of the growth of 

wages and salaries followed a pattern similar to those of 

the errors in forecasts of nominal output, indicating that 

the errors stemmed in part from errors in projecting the 

growth of both real output and prices. 

Particularly since 2001, CBO and the Administration 

have tended to overestimate growth in wages and salaries. 

To some extent, the fact that forecasters did not anticipate the 2001 and 2007–2009 recessions accounts for 

that tendency. In addition, starting in the early 2000s, 

wages began to grow more slowly than productivity. The 

unexpected departure from the historically close relationship between those two growth rates probably contributed to the overestimates of wage growth since the early 

2000s. Both CBO and the Administration also were 

surprised by the unusually sluggish recovery in wages and 

salaries relative to output following the two recessions.

Change in Wages and Salaries Measured as a Percentage 

of Output. To isolate the errors that were unique to the 

forecasts of wages and salaries, evaluating those forecasts as a percentage of nominal output is helpful (see 

Figure 15). Two notable historical patterns emerge from 

such an analysis:

■ Measured as a percentage of output, wages and 

salaries typically move in a cyclical pattern, falling 

during periods of high unemployment and rising 

when labor markets tighten.

■ Since the early 1970s, wages and salaries have 

been declining as a percentage of output. In part, 

that is because employers and employees have 

substituted untaxed noncash, or fringe, benefits 

32. The types of income included in GDI are wages and salaries, 

domestic economic profits, employee benefits, proprietors’ 

income, rental income, net interest payments, taxes on 

production and imports, the surplus of government enterprises, 

business current transfer payments, and depreciation—all minus 

subsidies.

(such as employer-paid health insurance premiums 

and pension contributions) for taxable wages and 

salaries.33 Other factors, such as technological change 

and globalization, also appear to have contributed to 

the decline during the past two decades.34

Two-year forecasts of the average annual change in wages 

and salaries measured as a percentage of output that were 

made over the entire 1980–2014 period exhibited a very 

small upward bias, but both CBO and the Administration overestimated the change in that percentage by a 

larger amount after 2000.35 Both forecasters had a similar degree of accuracy as measured by the RMSE.

During the first half of the 1980s, wages and salaries fell 

markedly as a percentage of GNP. CBO and the Administration correctly anticipated that decline, but they overestimated the magnitude of the reduction in most years.

Following a slight rebound in the mid-1980s, wages 

and salaries generally declined as a percentage of output 

through the early 1990s. To some extent, that decline 

derived from a large increase in the statistical discrepancy 

between GDP and GDI—the measure of total output 

grew faster than the measure of total income during 

those years. The increase in that discrepancy probably 

explains why CBO and the Administration tended to 

overestimate wages and salaries as a percentage of output 

during the period. 

In the late 1990s, wages and salaries grew rapidly as a 

percentage of GDP, and CBO and the Administration 

significantly underestimated the magnitude of that 

growth. Three factors probably contributed to the rise in 

wages and salaries relative to output: 

■ The statistical discrepancy between GDP and GDI 

generally declined during that period because the 

output measure grew more slowly than the income 

measure.

33. For more on employers’ contributions to defined-benefit pension 

plans, see Congressional Budget Office, The Budget and Economic 

Outlook: An Update (August 2005), Box 2-2, pp. 32–33, www.

cbo.gov/publication/17091.

34. See Congressional Budget Office, How CBO Projects Income

(July 2013), p. 15, www.cbo.gov/publication/44433.

35. For forecasts made before 1992, wages and salaries were measured 

as a percentage of GNP; since 1992, they have been measured as 

a percentage of GDP.
32 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 14.

Growth of Wages and Salaries: Two-Year Forecasts

Percentage Points Forecast Error (Forecast Minus Actual)

CBO

-4

-2

0

2

4

6

8

Administration

Percent Comparison of CBO’s Forecast and Actual Annual Growth

CBO

Actual

Underestimate

Overestimate

-2

0

2

4

6

8

10

12

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of wages and salaries over the two-year forecast period. 

Data are for forecasts made between 1980 and 2014. The Blue Chip consensus does not include forecasts of wages and salaries. 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 33

Figure 15.

Change in Wages and Salaries Measured as a Percentage of Nominal Output: Two-Year Forecasts

-1.0

-0.5

0

0.5

1.0

1.5

2.0

-2.0

-1.5

-1.0

-0.5

0

0.5

1.0

1976–

1977

1981–

1982

1986–

1987

1991–

1992

1996–

1997

2001–

2002

2006–

2007

2011–

2012

Percent

Percentage Points

Comparison of CBO’s Forecast and Actual Annual Change

CBO

Actual

Underestimate

Overestimate

Forecast Error (Forecast Minus Actual)

CBO

Administration

Two-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the two-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the two-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual change in wages and salaries as a percentage of nominal output over the two-year forecast period. 

Output is either GDP or (before 1992) GNP. 

Data are for forecasts made between 1980 and 2014. The Blue Chip consensus does not include forecasts of wages and salaries. 

GDP = gross domestic product; GNP = gross national product.
34 CBO’s Economic Forecasting Record: 2017 Update October 2017

■ Although labor compensation has increasingly been 

paid in the form of nontaxable benefits in the years 

since World War II, that trend was temporarily 

reversed in the late 1990s as employers’ contributions 

to employees’ pension funds and health insurance 

premiums fell as a share of compensation.36

■ Employee stock options became more prevalent 

during the 1990s, and gains from exercising stock 

options count as wage and salary income in the 

NIPAs. Changes in wages and salaries as a percentage 

of GDP generally corresponded to movements in the 

stock market in those years.37

During the first half of the 2000s, forecasters expected 

wages and salaries measured as a percentage of GDP to 

either rise or remain roughly unchanged, but instead 

they fell sharply. In part, the decline resulted from the 

shift in labor compensation toward nontaxable benefits. 

The 2001 recession and sluggish recovery in the labor 

market also contributed to the decline. However, the 

recession had only modest effects on output growth and 

the rate of unemployment, so the decline in wages and 

salaries as a percentage of GDP appears to be unusually 

large relative to the severity of the recession.

In the forecasts they made between 2008 and 2010, 

CBO and the Administration underestimated the effects 

of the severe 2007–2009 recession on wages and salaries 

relative to GDP. In early 2008, neither forecaster anticipated the onset of the recession, which reduced wages 

and salaries as a percentage of GDP, so both expected 

that measure to change very little over the following two 

years. By early 2009, the recession led both forecasters 

to significantly lower their projections of real output 

growth; however, they did not anticipate the effects that 

slower growth would have on wages and salaries relative 

36. For information about changes in employers’ contributions 

to health insurance during the late 1990s, see David Cutler, 

Employee Costs and the Decline in Health Insurance Coverage, 

Working Paper 9036 (National Bureau of Economic Research, 

July 2002), www.nber.org/papers/w9036. 

37. See Hamid Mehran and Joseph Tracy, The Impact of Employee 

Stock Options on the Evolution of Compensation in the 1990s, 

Working Paper 8353 (National Bureau of Economic Research, 

July 2001), www.nber.org/papers/w8353; and David Lebow 

and others, Recent Trends in Compensation Practices, Finance and 

Economics Discussion Series Paper 1999-32 (Board of Governors 

of the Federal Reserve System, July 1999), https://go.usa.gov/

xNkbV.

to GDP. Toward the end of 2010—in anticipation of 

tax policy changes scheduled to take effect in 2011 and 

on the basis of the assumption that fiscal policy would 

follow current law—CBO overestimated the increase in 

wages and salaries relative to GDP.38

For the forecasts prepared in 2011 and 2012, CBO’s 

errors were slightly larger than the Administration’s. In 

2011, CBO expected the cyclical rebound in wages and 

salaries measured as a percentage of GDP to be greater 

than it actually was, and the next year, it anticipated a 

slightly larger decline than actually occurred; the Administration’s errors were negligible in both years. In the 

2013 and 2014 forecasts, CBO and the Administration 

underestimated the change in wages and salaries as a 

percentage of output.

CBO’s Five-Year Forecasts

As with the two-year forecasts, the five-year forecasts 

made by CBO and the Blue Chip consensus show similar 

degrees of bias and accuracy, and both sets of forecasts 

are slightly more accurate than the Administration’s 

forecasts (see Table 2). Although the patterns of accuracy 

and bias are similar, the five-year forecasts have some 

characteristics that are distinct from those of the twoyear forecasts: 

■ The five-year forecasts rely more heavily on 

underlying trends in the economy. CBO, for 

example, does not usually forecast fluctuations in the 

economy after the first few years of the projection 

period. Instead, in the agency’s projections, output 

growth returns to its historical relationship with 

potential output growth, and other variables move to 

their estimated long-term values. As a result, errors in 

five-year forecasts often reveal inaccurate projections 

of the long-term growth of the economy.

■ The five-year forecasts may be less likely to produce 

large errors that are attributable to relatively brief 

or small shifts in economic activity. For example, 

38. In early 2009, CBO’s fiscal policy assumptions were consistent 

with the scheduled expiration of major provisions of the 

Economic Growth and Tax Relief Reconciliation Act of 2001 

and the Jobs and Growth Tax Relief Reconciliation Act of 2003. 

Those provisions were subsequently extended. The implications 

for the agency’s baseline forecasts of subsequent legislative 

changes are discussed in Congressional Budget Office, What Is 

a Current-Law Economic Baseline? (June 2005), www.cbo.gov/

publication/16558.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 35

Table 2.

Summary Measures for Five-Year Forecasts

Percentage Points

Mean error 0.2 0.4 0.1

Mean absolute error 0.9 1.1 0.9

Root mean square error 1.2 1.3 1.1

Mean error 0.8 0.9 0.9

Mean absolute error 1.1 1.2 1.1

Root mean square error 1.4 1.5 1.4

Mean error 0.2 * 0.4

Mean absolute error 0.4 0.5 0.5

Root mean square error 0.6 0.6 0.8

Mean error -0.2 -0.3 -0.2

Mean absolute error 0.3 0.4 0.4

Root mean square error 0.4 0.5 0.4

Mean error 1.2 0.8 1.3

Mean absolute error 1.4 1.3 1.5

Root mean square error 1.7 1.7 1.8

Mean error 1.0 0.7 0.9

Mean absolute error 1.4 1.4 1.3

Root mean square error 1.7 1.7 1.6

Mean error 0.8 0.3 0.9

Mean absolute error 1.0 1.1 1.0

Root mean square error 1.1 1.3 1.1

Mean error 1.0 1.2 b

Mean absolute error 1.5 1.6 b

Root mean square error 1.8 1.9 b

Mean error 0.1 0.1 b

Mean absolute error 0.3 0.3 b

Root mean square error 0.3 0.3 b

Change in Wages and Salaries Measured as a Percentage of Output (1980–2011)

Interest Rates

Wages and Salaries

Inflation in the CPI (1983–2011)

Difference Between Inflation in the CPI and the Output Price Index (1983–2011)

Interest Rate on 3-Month Treasury Bills (1983–2011)

Real Interest Rate on 3-Month Treasury Bills (1983–2011)a

Interest Rate on 10-Year Treasury Notes (1984–2011)

Growth of Wages and Salaries (1980–2011)

Inflation

Growth of Real Output (1979–2011) 

Growth of Nominal Output (1979–2011) 

Blue Chip 

Consensus

Output

CBO Administration

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis; 

Bureau of Labor Statistics; Federal Reserve.

Forecast errors are projected values minus actual values; thus, a positive error is an overestimate. The mean error is the arithmetic average of the 

forecast errors. The mean absolute error is the average of the errors with the negative signs removed from the underestimates. The root mean square 

error is calculated by squaring the forecast errors, averaging those squares, and taking the square root of that average.

Date ranges refer to the years in which the forecasts were made. For details on the data underlying the summary measures presented here, see the appendix.

Output is either GDP or (before 1992) GNP. Real output is nominal output adjusted to remove the effects of inflation.

CPI = consumer price index; GDP = gross domestic product; GNP = gross national product; * = between zero and 0.05 percentage points.

a. The real interest rate is the nominal interest rate deflated by the projected rate of growth in the CPI.

b. The Blue Chip consensus does not include forecasts of wages and salaries.
36 CBO’s Economic Forecasting Record: 2017 Update October 2017

because CBO did not anticipate that a recession 

would occur later in the year when it made its 

forecast in early 2001, the agency overestimated 

the average two-year growth rate of real output by 

about 11⁄2 percentage points but overestimated the 

average five-year growth rate by about one-half of a 

percentage point.

■ On the other hand, the error in the five-year forecast 

prepared in a given year can be larger than the error 

in the two-year forecast made that same year if a 

recession occurs after the second year of the forecast 

period. For example, the two-year forecast of real 

output growth made in 2005 was relatively accurate 

because it was unaffected by the recession that began 

at the end of 2007, just after the forecast period 

ended. The error in the five-year forecast made that 

year, however, was over three times as high because it 

included the effects of that recession. 

Output

All the forecasters’ five-year projections of output growth 

(both real and nominal) exhibited similar bias and accuracy. Compared with the two-year forecasts, the five-year 

forecasts had slightly more upward bias but were roughly 

as accurate. 

Growth of Real Output. Errors in forecasting real 

output growth over five-year periods are generally due 

to unexpected shifts in the growth rate of productivity. 

Recessions and cyclical factors tend to have less of an 

effect on the longer-term forecasts, although the 2007–

2009 recession remains a significant source of error in 

the five-year forecasts. 

In the forecasts they made between 1976 and 1979, CBO 

and the Administration overestimated the five-year average growth rate of real GNP by more than 2 percentage 

points, on average (see Figure 16). In part, those errors 

reflect the slowdown in productivity growth that followed 

the 1973–1975 recession (see Figure 5 on page 13). 

Because the forecasters did not expect that slowdown, 

they overestimated the trend in output growth during 

the late 1970s. When preparing their forecasts in early 

1978 and 1979, CBO and the Administration did not 

anticipate the two recessions that occurred during the 

early 1980s, which contributed to the errors made in 

those forecasts. 

The five-year forecasts of the growth of real output that 

CBO, the Administration, and the Blue Chip consensus 

made during the early 1980s were relatively accurate 

despite the severe 1981–1982 recession. Real output 

rebounded very quickly after the recession, so average 

growth during the recession and the subsequent recovery slightly exceeded the growth projected before the 

recession. As economic conditions stabilized after the 

turbulent early 1980s, CBO and the Blue Chip consensus 

made accurate forecasts in the second half of the decade. 

The Administration, however, slightly overestimated real 

output growth in those years. 

Five-year forecasts of the growth of real GDP made 

between 1991 and 1999 were too pessimistic. On average, actual growth exceeded all three forecasts’ projections of growth by more than a percentage point. Those 

errors largely resulted from the investment boom of the 

late 1990s, which increased the capital stock and thereby 

boosted labor productivity and potential output. Methodological revisions made by BEA in 1999 also contributed to underestimates in forecasts prepared near the end 

of the period.

In the forecasts they made between 2000 and 2003, 

CBO, the Administration, and the Blue Chip consensus 

slightly overestimated the five-year average growth rate of 

real GDP (by less than one-half of a percentage point, on 

average). A portion of the errors probably stemmed from 

overestimates of potential output. For example, in early 

2002, CBO projected that potential output would grow 

at an average annual rate of 3.0 percent over the next five 

years. However, the agency now estimates that potential output grew at an average rate of 2.4 percent per 

year between 2002 and 2006. That revision reflects an 

emerging consensus that productivity growth slowed for 

structural reasons even before the deep recession started 

at the end of 2007.39 Because estimates of potential 

output underpin the medium-term projections, errors in 

forecasts of potential output carry through to forecasts of 

other variables.

39. The revisions to CBO’s estimates of potential output reflect 

updated historical data and analytical methods. For further 

discussion of the sources of those revisions, see Congressional 

Budget Office, The Budget and Economic Outlook: 2017 to 2027

(January 2017), pp. 64–65, www.cbo.gov/publication/52370, 

and Revisions to CBO’s Projection of Potential Output Since 2007

(February 2014), www.cbo.gov/publication/45150. 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 37

Figure 16.

Growth of Real Output: Five-Year Forecasts

–3

–2

–1

0

1

2

3

4

0

1

2

3

4

5

6

Percent Comparison of CBO’s Forecast and Actual Annual Growth

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Five-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of real (inflation-adjusted) output over the five-year forecast period. Output is either 

GDP or (before 1992) GNP.

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast of real output was published in 1979.

GDP = gross domestic product; GNP = gross national product.
38 CBO’s Economic Forecasting Record: 2017 Update October 2017

The unexpectedly severe and prolonged effects of the 

2007–2009 recession account for most of the errors in 

the five-year forecasts of real GDP growth that were prepared from 2004 to 2011. Forecasts made between 2005 

and 2008, in particular, were much too optimistic. On 

average, during that period, CBO’s and the Administration’s forecasts exceeded actual growth by 2.4 percentage 

points, and the Blue Chip consensus forecast exceeded 

actual growth by 2.2 percentage points. 

In the aftermath of the 2007–2009 recession, forecast 

errors remained high because of the economy’s unusually 

slow recovery. Forecasters expected the pace of the recovery to quicken as it had following most previous recessions. The slowdown in the growth of productivity—

which started in the mid-2000s but was not immediately 

recognized by forecasters—contributed to the sluggish 

recovery and to forecasters’ continuing to overestimate 

real output growth in 2010 and 2011. CBO was more 

accurate than the Administration but less accurate than 

the Blue Chip consensus in those two years.

Growth of Nominal Output. Differences between forecast errors for real and nominal output growth indicate 

inaccuracies in forecasts of inflation in the output price 

index.40 For the entire 1979–2011 period covered in this 

evaluation, all three sets of forecasts overestimated the 

five-year growth rate of nominal output by more than 

three-quarters of a percentage point, on average. Overall, 

errors in forecasts of nominal output tend to be more 

pronounced around turning points in the economy than 

errors in forecasts of real output because they depend 

on forecasts of two cyclical components—real output 

growth and growth in the output price index. 

In the 1980s and 1990s, forecasters’ tendency to overestimate inflation contributed to overestimates of nominal output growth (see Figure 17). By contrast, between 

2000 and 2005 forecasters tended to underestimate 

inflation rates, which partially offset their overestimates 

of real output growth. All the forecasters had large errors 

in the lead-up to the 2007–2009 recession, and they 

continued to overestimate economic growth during the 

recovery. 

40. As noted above in the discussion of the two-year forecasts, the 

forecasters projected GNP before 1992 and have projected GDP 

since then.

Inflation

In the five-year forecasts they made between 1983 and 

2011, CBO, the Administration, and the Blue Chip

consensus slightly overestimated inflation in the CPI 

and underestimated the difference between inflation in 

the CPI and the output price index, on average. (The 

average error in forecasts of inflation in both indexes is 

positive, but it is larger for forecasts of inflation in the 

output price index). The RMSE of the inflation forecasts 

is roughly similar for all forecasters, indicating that they 

were all about equally accurate. 

Inflation in the CPI. By far, the largest errors in five-year 

forecasts of inflation in the CPI were made during the 

late 1970s and early 1980s; projections became more 

accurate as inflation stabilized starting in the mid-1980s 

(see Figure 18). Between 1976 and 1979, CBO and the 

Administration underestimated the inflation rate in their 

five-year forecasts by an average of 3.2 percentage points 

and 3.9 percentage points, respectively. As the inflation 

rate fell during and after the 1981–1982 recession, 

forecasters gradually lowered their five-year estimates. 

On average, between 1980 and 1984, CBO overestimated the inflation rate by 2.1 percentage points, and 

the Administration overestimated it by 1.6 percentage 

points. 

As inflation rates moderated after the early 1980s, errors 

in the five-year forecasts diminished. Between 1985 and 

1999, CBO and the Blue Chip consensus overestimated 

the inflation rate by about one-half of a percentage 

point, on average, whereas the Administration overestimated the rate by a negligible amount. Nevertheless, 

all three sets of forecasts had the same mean absolute 

error over the 1985–1999 period. 

All the forecasters made only small errors in projecting 

the five-year average rate of inflation in 2000 and 2001, 

but they failed to anticipate the rise in that rate after 

2001. As a result, they all underestimated inflation significantly in the forecasts they made from 2002 to 2004.

Errors in forecasts of inflation were generally small from 

2005 to 2009. All the forecasters correctly anticipated 

a fall in inflationary pressures as a result of the 2007–

2009 recession and the subsequent slowdown in the 

growth of output. In 2010, CBO underestimated inflation by one-half of a percentage point, but the next year 

it accurately forecast inflation. The Blue Chip consensus 

overestimated inflation in both those years, whereas the 
October 2017 CBO’s Economic Forecasting Record: 2017 Update 39

Figure 17.

Growth of Nominal Output: Five-Year Forecasts

-2

-1

0

1

2

3

4

2

4

6

8

10

12

14

Percent Comparison of CBO’s Forecast and Actual Annual Growth

Underestimate

Overestimate

Administration CBO

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Five-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of nominal output over the five-year forecast period. Output is either GDP or (before 

1992) GNP. 

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast of nominal output was published in 1979.

GDP = gross domestic product; GNP = gross national product.
40 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 18.

Inflation in the Consumer Price Index: Five-Year Forecasts

-6

-4

-2

0

2

4

0

2

4

6

8

10

Five-Year Forecast Period

Percent Comparison of CBO’s Forecast and Actual Annual Inflation

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of the CPI over the five-year forecast period. Most of the forecasts represented here 

were for the CPI-U, but some were for the CPI-W. For details on the underlying data, see the appendix.

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast of the CPI was published in 1983.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 41

Administration made fairly accurate forecasts. Compared 

with their two-year forecasts from the same period, all 

of the forecasters’ five-year projections of inflation made 

from 2005 to 2011 were more accurate. 

Difference Between Inflation Measures. In the forecasts 

they prepared between 1976 and 1980, CBO and the 

Administration underestimated the difference between 

the five-year average inflation rates measured by the CPI 

and the output price index by 1.4 percentage points, on 

average (see Figure 19). The widening of the gap between 

the two inflation rates was mostly due to the increase 

in the price of oil in 1979. Between 1983 and 1998, 

CBO, the Administration, and the Blue Chip consensus 

consistently underestimated the difference between the 

inflation rates—CBO, by an average of 0.4 percentage 

points; the Administration, by an average of 0.6 percentage points; and the Blue Chip consensus, by an average 

of 0.5 percentage points. In each of those cases, about 

0.2 percentage points of the bias resulted from downward revisions to inflation in the GDP price index that 

were made following the comprehensive revision to the 

NIPAs in 1999. 

When preparing their projections between 2000 and 

2003, none of the forecasters anticipated that the difference between the two inflation measures would decline 

significantly. They all moderately overestimated the 

difference in those years. 

After 2003, forecast errors were generally small. On 

the whole, CBO made slightly more accurate forecasts 

during the 2007–2009 recession than the Administration or the Blue Chip consensus did. In 2010 and 2011, 

all the forecasters slightly overestimated the difference 

between inflation measures. 

Interest Rates

Between 1984 and 2011, CBO, the Administration, and 

the Blue Chip consensus tended to overestimate interest 

rates on 3-month Treasury bills and 10-year Treasury 

notes. Five-year forecasts of interest rates exhibited 

roughly twice as much upward bias as the comparable 

two-year forecasts and were less accurate than those 

forecasts as well. That is primarily because interest rates, 

particularly long-term rates, have declined more persistently since the early 1980s than they were expected to 

and they have not returned to the levels reached in the 

1970s and 1980s. 

Like those in the agency’s two-year forecasts, the errors 

in CBO’s five-year forecasts of short-term interest rates 

were largest around recessions. Errors tend to occur then 

partly because the demand for borrowing typically falls 

during recessions, which causes short-term interest rates 

to decline, and partly because the Federal Reserve generally responds to recessions by acting to reduce short-term 

interest rates. 

CBO’s tendency to overestimate long-term interest rates 

over five-year periods is less related to recessions than it is 

to the largely unanticipated decline in long-term interest 

rates that began in the early 1980s. CBO overestimated 

long-term interest rates in most years between 1984 and 

2011 because it made those forecasts using models that 

were based on the assumption that interest rates would 

move back toward their historical levels. Unexpected 

trends, such as growing foreign demand for Treasury 

securities and the declining term premium, as well as 

factors that affect the long-term growth rates of output, 

such as the size of the labor force and productivity, add 

to the uncertainty of the five-year forecasts of interest 

rates. 

Interest Rate on 3-Month Treasury Bills. On average, between 1983 and 2011, CBO and the Blue Chip

consensus overestimated nominal interest rates by about 

11⁄4 percentage points, whereas the Administration overestimated them by three-quarters of a percentage point. 

The Administration’s smaller mean error was mostly 

a consequence of the offsetting effect of larger underestimates rather than of more accurate forecasts overall. 

Forecasts of nominal interest rates prepared between 

1983 and 2011 were not very accurate (see Figure 20). 

Forecasts of real interest rates were slightly less biased 

than the forecasts of nominal interest rates, but they had 

a similar degree of accuracy (see Figure 21). The difference between errors in projections of nominal and real 

interest rates stems from errors in projecting inflation. 

That difference was substantial during the late 1970s 

and early 1980s but became less pronounced as inflation 

stabilized. 

From 1976 to 1980, CBO and the Administration 

underestimated nominal interest rates mainly because 

of surprisingly high inflation during those years. Overestimates of the real interest rate in the forecasts from 

the first two of those years improved the accuracy of the 

nominal rate projections, whereas underestimates of the 
42 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 19.

Difference Between Inflation in the CPI and in the Output Price Index: Five-Year Forecasts

-2.5

-2.0

-1.5

-1.0

-0.5

0

0.5

-0.4

0

0.4

0.8

1.2

1.6

2.0

Five-Year Forecast Period

Percentage Points Comparison of CBO’s Forecast and Actual Dierence

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics; 

Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show average annual growth in the CPI over the five-year forecast period minus average annual growth in the output price index 

over that period. In most of the forecasts represented here, the CPI-U was forecast, but in some, the CPI-W was forecast. The output price index measures 

the prices of all goods and services that make up either GDP or (before 1992) GNP. For details on the underlying data, see the appendix. 

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast of the CPI was published in 1983.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers; 

GDP = gross domestic product; GNP = gross national product.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 43

Figure 20.

Interest Rate on 3-Month Treasury Bills: Five-Year Forecasts

Five-Year Forecast Period

-6

-4

-2

0

2

4

0

2

4

6

8

10

12

Percent Comparison of CBO’s Forecast and Actual Interest Rate

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Federal Reserve; Bureau of 

the Public Debt.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual interest rate over the five-year forecast period. Most of the forecasts represented here were for 

the secondary-market interest rate, but some were for the rate on newly issued bills or for the 6-month commercial paper rate. For details on the 

underlying data, see the appendix.

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast for short-term rates was published in 1983.
44 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 21.

Real Interest Rate on 3-Month Treasury Bills: Five-Year Forecasts

-4

-2

0

2

4

-2

-1

0

1

2

3

4

5

Five-Year Forecast Period

Percent Comparison of CBO’s Forecast and Actual Interest Rate

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Bureau of Labor Statistics; 

Federal Reserve; Bureau of the Public Debt.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average nominal annual interest rate over the five-year forecast period deflated by the growth in the CPI over that 

period. Most of the forecasts represented here were for the secondary-market interest rate, but some were for the rate on newly issued bills or for the 

6-month commercial paper rate. In most cases, the CPI-U was used as the deflator, but in some, the CPI-W was used. For details on the underlying data, 

see the appendix.

The most recent forecasts included are those published in 2011. The first five-year Blue Chip consensus forecast for short-term interest rates was 

published in 1983.

CPI = consumer price index; CPI-U = consumer price index for all urban consumers; CPI-W = consumer price index for urban wage earners and clerical workers.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 45

real interest rate in the 1979 and 1980 forecasts contributed to the errors in projections of the nominal rate. 

CBO generally overestimated short-term nominal interest rates in its forecasts from 1981 to 1992, particularly 

in those it made around the 1990 recession. Notably, 

the Administration forecast significantly lower nominal 

interest rates over that period, resulting in underestimates 

of those rates that were larger than the other forecasters’ 

through the 1980s but in overestimates that were smaller 

than the others’ in the early 1990s. 

Errors in projections of interest rates were relatively small 

between 1993 and 1997 for all forecasters, but they 

started rising again in the late 1990s. During the 2001 

and 2007–2009 recessions, errors increased dramatically, 

partly because the forecasters failed to anticipate the 

recessions and the subsequent drop in interest rates and 

partly because rates remained unusually low during the 

recovery from both recessions. Over the past 15 years, 

all the forecasters have made fairly accurate projections 

of inflation, so nominal and real interest rate errors 

have tracked each other closely. The one notable exception to that pattern was the period from 2003 to 2005, 

when underestimates of inflation led to more accurate 

projections of nominal interest rates for all three sets of 

forecasts. 

In the wake of the 2007–2009 recession, unusually 

accommodative monetary policy reduced short-term 

interest rates to near zero. Forecasters did not anticipate 

that shift, which led them to overestimate both nominal 

and real interest rates. In addition to monetary policy, 

low foreign interest rates and concerns about foreign 

growth led to an increase in demand for Treasury securities that CBO and other forecasters did not foresee in the 

years after the recession. Forecasters also failed to anticipate the persistence of the downward trend in interest 

rates. 

Interest Rate on 10-Year Treasury Notes. Between 1984 

and 2011, CBO and the Blue Chip consensus overestimated the nominal interest rates on 10-year Treasury 

notes, on average. The Administration also overestimated 

the nominal interest rate on 10-year Treasury notes, on 

average, but only by about one-third as much as CBO 

and the Blue Chip consensus did. That lower mean error 

partly reflects the fact that the Administration underestimated the long-term interest rates in the early years 

of the period, and those underestimates offset the large 

overestimates it made later (see Figure 22). As measured 

by the RMSE, the accuracy of all three forecasts was 

similar. 

Forecasters have consistently overestimated interest 

rates since the early 2000s. The mean errors of forecasts 

prepared since then were roughly three times larger 

than mean errors of forecasts made between 1984 and 

1999. The unusually slow recoveries from the 2001 and 

2007–2009 recessions contributed to the recent increase 

in forecast error—forecasters continued to overestimate 

interest rates on 10-year Treasury notes long after the 

recessions had ended. 

Several factors in addition to those slow recoveries 

account for CBO’s and other forecasters’ persistently 

overestimating interest rates since the mid-2000s. The 

rate of growth in productivity—which is an important 

determinant of interest rates—has been lower than CBO 

and other forecasters expected. Additionally, low foreign 

interest rates, heightened concern about global growth, 

and increased demand (by both foreign and domestic 

investors) for Treasury securities as a hedge against possible adverse economic outcomes have further contributed 

to low interest rates, especially since 2009, when the 

most recent recession ended. The Federal Reserve’s policy 

of quantitative easing—that is, the direct purchase of 

long-term Treasury securities, mortgage-backed securities, and agency debt—also contributed to the unusually 

low long-term interest rates since 2009. Additionally, 

forecasters failed to anticipate the persistence of the longterm downward trend in interest rates. 

Wages and Salaries

In their forecasts made between 1980 and 2011, CBO 

and the Administration tended to overestimate the 

growth of wages and salaries as well as the change in 

wages and salaries measured as a percentage of output. 

Forecast errors varied widely over time, however, and 

included substantial underestimates by both CBO and 

the Administration between 1995 and 1997.

Growth of Wages and Salaries. Between 1980 and 2011, 

CBO’s and the Administration’s forecasts of the fiveyear average growth rate of wages and salaries exhibited 

notable upward bias and similar degrees of accuracy (see 

Figure 23). Compared with the two-year forecasts, they 

had slightly more upward bias but were nevertheless 

just as accurate. Like those in the two-year forecasts, the 
46 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 22.

Interest Rate on 10-Year Treasury Notes: Five-Year Forecasts

-3

-2

-1

0

1

2

3

2

4

6

8

10

12

Five-Year Forecast Period

Percent Comparison of CBO’s Forecast and Actual Interest Rate

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

Blue Chip

Consensus

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Wolters Kluwer, Blue Chip Economic Indicators; Federal Reserve.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual interest rate over the five-year forecast period. CBO did not forecast the interest rate on 10-year 

Treasury notes in 1984 or 1985, and the Blue Chip consensus did not include forecasts of the rate from 1984 to 1995. In those cases, the forecaster’s 

projections of the Moody’s Aaa corporate bond rate were used as a substitute.

Data are for forecasts made between 1984 and 2014.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 47

Figure 23.

Growth of Wages and Salaries: Five-Year Forecasts

-3

-2

-1

0

1

2

3

4

0

2

4

6

8

10

12

Five-Year Forecast Period

Percent Comparison of CBO’s Forecast and Actual Annual Growth

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual growth rate of wages and salaries over the five-year forecast period. 

Data are for forecasts made between 1980 and 2011. The Blue Chip consensus does not include forecasts of wages and salaries. 
48 CBO’s Economic Forecasting Record: 2017 Update October 2017

Figure 24.

Change in Wages and Salaries Measured as a Percentage of Nominal Output: Five-Year Forecasts

-1.0

-0.5

0

0.5

1.0

-1.0

-0.5

0

0.5

1.0

Percent Comparison of CBO’s Forecast and Actual Annual Change

Underestimate

Overestimate

CBO

Administration

Percentage Points Forecast Error (Forecast Minus Actual)

CBO

Actual

1976–

1980

1981–

1985

1986–

1990

1991–

1995

1996–

2000

2001–

2005

2006–

2010

2011–

2015

Five-Year Forecast Period

Sources: Congressional Budget Office; Office of Management and Budget; Bureau of Economic Analysis.

The date ranges on the horizontal axis refer to the five-year forecast period; each forecast was issued in the first year of that period. The dots indicate 

that the five-year forecast period overlapped a recession by six months or more.

Forecast and actual data show the average annual change in wages and salaries as a percentage of nominal output over the five-year forecast period. 

Output is either GDP or (before 1992) GNP. 

Data are for forecasts made between 1980 and 2011. The Blue Chip consensus does not include forecasts of wages and salaries. 

GDP = gross domestic product; GNP = gross national product.
October 2017 CBO’s Economic Forecasting Record: 2017 Update 49

errors in the five-year forecasts of the growth of wages 

and salaries followed a cyclical pattern. 

Change in Wages and Salaries Measured as a Percentage 

of Output. Between 1980 and 2011, CBO’s and the 

Administration’s forecasts of changes in wages and salaries 

measured as a percentage of output exceeded the actual 

changes by the same average amount (see Figure 24). 

Errors in forecasting the change in wages and salaries 

measured as a percentage of output were related to unexpected trends in the economy. 

From 1982 to 1986, CBO and the Administration 

underestimated the change in wages and salaries measured as a percentage of output in their five-year projections. They may have overestimated the depth and duration of the cyclical decline in labor compensation relative 

to output following the 1980 and 1981–1982 recessions. 

Another possibility is that the forecasters overestimated 

the extent to which labor compensation would shift away 

from wages to nontaxable benefits.

In the five-year forecasts they made between 1987 and 

1993, CBO and the Administration estimated only small 

changes in wages and salaries measured as a percentage of 

output, but the actual percentage declined significantly 

over the years covered by those forecasts. The 1990 recession probably contributed to that unexpected decline.

From 1994 to 1997, CBO and the Administration 

forecast relatively small changes in wages and salaries 

measured as a percentage of output over each five-year 

projection period, but the actual changes exceeded the 

forecasters’ estimates. As with the two-year forecasts, 

the following three factors probably contributed to the 

increase during those years: 

■ Measures of income grew more quickly than GDP; 

■ Labor compensation temporarily shifted away from 

nontaxable benefits to wages; and

■ Employee stock options became more prevalent, and 

the value of the stock market rose. 

In almost all the forecasts they made between 1999 and 

2010, CBO and the Administration projected that in 

relation to GDP, wages and salaries would either remain 

roughly flat or rise slightly over the five-year horizon. 

However, the average five-year change in wages and 

salaries measured as a percentage of GDP was negative 

during the 2000s, particularly in the wake of the 2001 

and 2007–2009 recessions. As wages and salaries have 

risen in relation to GDP in recent years, CBO and other 

forecasters have made more accurate forecasts.

Appendix: Forecast and Historical 

Data Used in This Evaluation

This appendix provides an overview of the data that the 

Congressional Budget Office used to evaluate its forecasting record. The evaluation covers forecasts of the growth 

of real (inflation-adjusted) and nominal output, inflation, interest rates, and changes in wages and salaries. 

The historical data for output and the output price index 

used were the current series available from the Bureau of 

Economic Analysis (BEA). Historical data for inflation 

and interest rates varied because CBO, the Administration, and the Blue Chip consensus used slightly different 

measures in some years. 

Forecasts Included in This Evaluation

CBO evaluated the forecasts that it published between 

1976—the first year that the agency made economic projections—and 2014.1

 (Two-year forecasts published in 

early 2015 were not included because when this analysis 

was completed, the latest full-year historical data did not 

extend beyond 2015.) For comparison, the agency also 

evaluated the Administration’s forecasts from those same 

years. In all but one case, the Administration’s forecasts 

were taken from its annual budget documents; the forecast made in early 1981 by the Reagan Administration, 

which was based on revisions of the Carter Administration’s last budget, came from a separate document.2

1. Because CBO has published forecasts of wages and salaries 

on a regular basis only since 1985, this analysis used some 

unpublished forecasts of wages and salaries that the agency made 

in earlier years.

2. CBO’s corresponding forecast was taken from the agency’s 

analysis of President Reagan’s budgetary proposals. That forecast 

presented the agency’s baseline projections and did not include 

the economic effects of the new Administration’s fiscal policy 

proposals. But it did reflect the assumption that the tax and 

spending policies of the Second Concurrent Resolution on the 

Budget for Fiscal Year 1981, including accelerated depreciation 

of investment and a 10 percent cut in personal income taxes, 

would continue. Another exceptional case occurred in early 1993, 

when the Clinton Administration adopted CBO’s economic 

assumptions as the basis for its budget. As a result, the errors 

from the early 1993 forecast are the same for CBO and the 

Administration.

The Blue Chip consensus forecasts included in this 

evaluation were those published closest to the date on 

which CBO’s forecasts were released. The first two-year 

forecast by the Blue Chip consensus that CBO examined 

was published in early 1980; however, that forecast did 

not include all variables. For those indicators that were 

not included in the 1980 forecast, the earliest possible 

forecast was used—for inflation measures and interest 

rates on 3-month Treasury bills, the 1981 forecast, and 

for long-term interest rates, the 1984 forecast. Although 

the Blue Chip consensus is published monthly, only 

those forecasts published in March and October extend 

beyond two years. All but one of the five-year forecasts 

from the Blue Chip consensus used in this evaluation 

were published in March; the forecast of real output for 

the 1980–1984 period was published in May 1980. The 

Blue Chip consensus does not include forecasts of all the 

economic variables that underlie CBO’s baseline projections. Most notably, it does not provide forecasts of 

wages and salaries. 

Since 1979, the staff of the Board of Governors of the 

Federal Reserve System has regularly prepared detailed 

two-year economic forecasts for the Federal Open 

Market Committee (FOMC), the body responsible for 

conducting monetary policy. Those forecasts are released 

to the public on a delayed schedule, typically five years 

after they are made. In conjunction with certain meetings of the FOMC, members of the committee—the 

members of the Board of Governors and the presidents 

of the regional Federal Reserve Banks—compile their 

own forecasts for selected economic indicators. The 

ranges and central tendencies of those forecasts have 

been published in the minutes of the meetings since late 

2007. For forecasts of real output and of inflation in 

consumer prices made between 1979 and 2011, CBO 

compared its projections with those prepared by the staff 

of the board; for those made from 2012 to 2014, the 

central tendencies of the FOMC members’ forecasts were 

used for comparison. All of the Federal Reserve’s forecasts analyzed here were issued in January or February of 
52 CBO’s Economic Forecasting Record: 2017 Update OCTOBER 2017

the initial year of the forecast period or in December of 

the preceding year.

Output

Historical average growth rates of nominal output are 

based on calendar-year averages of the most recent quarterly values of gross national product (GNP) and gross 

domestic product (GDP) published by BEA. In 1991, 

BEA changed its featured measure of output from GNP 

to GDP. GNP differs from GDP in that GNP includes 

the income that U.S. residents earn abroad and excludes 

the income that foreigners earn in this country. 

Growth rates of real output were calculated using 

calendar-year averages of the most recent quarterly data 

on real GNP and real GDP published by BEA. Over the 

years covered in this analysis, BEA made several benchmark revisions to real GNP and GDP. Such revisions 

make comparing forecasts with actual data difficult.

For example, from 1976 to 1985, forecasters published 

projections of real GNP growth that reflected BEA’s 

current measure of such growth at the time, which 

was based on 1972 prices. In late 1985, however, BEA 

discontinued the series presented in 1972 dollars and 

began to publish figures for GNP in 1982 dollars. As a 

result, no official data for GNP growth in 1972 dollars 

are available for the years after 1984, meaning that the 

actual two-year average growth rates that would be used 

to evaluate the forecasts made in 1984 and 1985 are 

unavailable.

Moreover, from 1986 to 1991, forecasters published 

projections of the growth of real GNP that were based 

on 1982 prices. In the second half of 1991, BEA made 

another benchmark revision and began publishing 

estimates of GNP in 1987 dollars. Today, the historical 

annual series for GNP in 1982 dollars is available only 

through 1990, so no actual two-year average growth rates 

are available for comparison with the forecasts made 

in 1990 and 1991. Late in 1995, BEA made another 

switch—to a chain-weighted measure of GDP. The 

historical annual series for GDP in 1987 dollars ends 

with the value for 1994; thus, there are no corresponding 

actual two-year average growth rates available for the 

forecasts made in 1994 and 1995.

By periodically updating the series to reflect recent 

prices, BEA ensures that its benchmark for real output is 

relevant for analyzing contemporary movements in real 

growth. But that practice makes it difficult to evaluate 

forecasts of real output growth that are produced over 

several years on the basis of a series that is later discontinued. Consequently, comparisons in this evaluation use 

BEA’s chain-type annual-weighted index of real GNP or 

GDP for all historical values.

Inflation

CBO calculated averages of inflation in the consumer 

price index from calendar-year averages of monthly 

data published by the Bureau of Labor Statistics. Before 

1978, the bureau published only one consumer price 

index series, now known as the CPI-W (the price index 

for urban wage earners and clerical workers). In January 

1978, however, the bureau began to publish a second, 

broader consumer price index series, the CPI-U (the 

price index for all urban consumers).

Until 1992, the Administration published its forecasts 

for the CPI-W, the measure used to index most of the 

federal government’s spending for entitlement programs. 

By contrast, CBO based all but four of its forecasts of 

inflation published since 1979—those released from 

1986 to 1989—on the CPI-U, which is the measure of 

inflation now used to index federal income tax brackets. The Blue Chip consensus and the Federal Reserve 

have always included forecasts for the CPI-U. Although 

annual fluctuations in the CPI-U and CPI-W are virtually indistinguishable, the indexes differ in some years. 

As part of its analysis, CBO also evaluated forecasts of 

the difference between CPI inflation and inflation in 

the price index for output. The agency used the implicit 

price deflator for GDP (or, before 1992, GNP) available 

from BEA to measure the price index for output.

Interest Rates

CBO used data published by the Board of Governors of 

the Federal Reserve System and the Department of the 

Treasury to calculate two-year averages of short-term and 

long-term interest rates. 

CBO’s comparison of forecasts of short-term interest 

rates relied primarily on historical values for two measures of the interest rate on 3-month Treasury bills: the 

new-issue rate and the secondary-market rate. Before 

2001, the Administration forecast the new-issue rate, 

which corresponds to the price of 3-month bills auctioned by the Department of the Treasury. The new-issue 

rate thus reflects the interest that would be earned by 
APPENDIX CBO’s Economic Forecasting Record: 2017 Update 53

an investor who purchased a bill at auction and held it 

to maturity. Since mid-2001, the Administration has 

forecast the secondary-market rate, which corresponds 

to the price of 3-month bills traded outside of Treasury 

auctions. Such transactions occur continually in markets 

that involve many more traders than there are bidders in 

Treasury auctions. Thus, the secondary-market rate provides a better measure of conditions in financial markets.

Unlike the Administration, CBO has only ever forecast 

the secondary-market rate. The Blue Chip consensus, 

by contrast, has alternated between the two rates, and, 

in 1981, it even projected a third—the 6-month commercial paper rate. The Blue Chip consensus forecast the 

new-issue rate from 1982 to 1985, the secondary-market 

rate from 1986 to 1991, and the new-issue rate again 

from 1992 to 1997. Since March 1997, the Blue Chip 

consensus has forecast the secondary-market rate. There 

is no reason to expect the rates to differ persistently; 

indeed, the differences between their calendar-year averages are minuscule.

CBO likewise compared the various forecasts of longterm interest rates with historical values for two measures 

of long-term rates: the 10-year Treasury note rate and 

Moody’s Aaa corporate bond rate. A comparison of forecasts made before 1984 is not possible because not all of 

the forecasters published forecasts of long-term interest 

rates then. In 1984 and 1985, CBO projected the Aaa 

corporate bond rate. Since then, however, CBO has projected the 10-year Treasury note rate. The Administration 

has always published forecasts for the 10-year Treasury 

note rate. The Blue Chip consensus forecast the Aaa corporate bond rate until January 1996, when it switched to 

the 10-year Treasury rate.

CBO calculated separate historical values for real shortterm interest rates using the nominal interest rate and 

the inflation rate appropriate for each forecaster. In each 

case, the average interest rate was deflated by the average 

growth rate of the consumer price index. The resulting real short-term interest rates were similar among 

forecasts.

Wages and Salaries

The data on wages and salaries used in this report 

come from the National Income and Product Accounts 

published by the Department of Commerce’s Bureau 

of Economic Analysis. Wages and salaries are by far the 

biggest component of national income. CBO evaluates 

errors in forecasting wages and salaries because, given 

their share of personal taxable income, they are a key 

determinant of overall tax receipts. 

List of Tables and Figures

Tables

1. Summary Measures for Two-Year Forecasts 9

2. Summary Measures for Five-Year Forecasts 35

Figures

1. Mean Errors of Two-Year Forecasts 2

2. Root Mean Square Errors of Two-Year Forecasts 3

3. CBO’s Forecasts and Actual Growth Rates of Real GDP 11

4. Root Mean Square Errors of Two-Year Forecasts of the Growth of 

Real Output Made Near Business Cycle Peaks 12

5. Trends in Labor Productivity 13

6. Price of Petroleum Imports and Consumer Price Inflation 14

7. Growth of Real Output: Two-Year Forecasts 18

8. Growth of Nominal Output: Two-Year Forecasts 21

9. Inflation in the Consumer Price Index: Two-Year Forecasts 23

10. Difference Between Inflation in the CPI and in the Output Price 

Index: Two-Year Forecasts 24

11. Interest Rate on 3-Month Treasury Bills: Two-Year Forecasts 27

12. Real Interest Rate on 3-Month Treasury Bills: Two-Year Forecasts 28

13. Interest Rate on 10-Year Treasury Notes: Two-Year Forecasts 30

14. Growth of Wages and Salaries: Two-Year Forecasts 32

15. Change in Wages and Salaries Measured as a Percentage of Nominal 

Output: Two-Year Forecasts 33

16. Growth of Real Output: Five-Year Forecasts 37

17. Growth of Nominal Output: Five-Year Forecasts 39

18. Inflation in the Consumer Price Index: Five-Year Forecasts 40

19. Difference Between Inflation in the CPI and in the Output Price 

Index: Five-Year Forecasts 42

20. Interest Rate on 3-Month Treasury Bills: Five-Year Forecasts 43

21. Real Interest Rate on 3-Month Treasury Bills: Five-Year Forecasts 44

22. Interest Rate on 10-Year Treasury Notes: Five-Year Forecasts 46

23. Growth of Wages and Salaries: Five-Year Forecasts 47

24. Change in Wages and Salaries Measured as a Percentage of Nominal 

Output: Five-Year Forecasts 48
About This Document

The Congressional Budget Office regularly evaluates the accuracy of its economic forecasts 

by comparing them with the economy’s actual performance and with others’ forecasts. Such 

evaluations help guide CBO’s efforts to improve the quality of its forecasts and, as background 

information, are also intended to assist Members of Congress in their use of the agency’s 

estimates. In keeping with CBO’s mandate to provide objective, impartial analysis, the report 

makes no recommendations.

Edward Gamber and Claire Sleigh wrote the report with guidance from Kim Kowalewski. Robert 

Arnold, Mark Booth, Jeffrey Holland (formerly of CBO), and Jeffrey Werling provided helpful 

comments. Mark Lasky and Adam Staveski fact-checked the report.

Wendy Edelberg, Jeffrey Kling, and John Skeen reviewed the report. Bo Peery edited it, and 

Jorge Salazar prepared it for publication. The report is available on CBO’s website (www.cbo.gov/

publication/53090).

Keith Hall

Director

October 2017