Committee for a Responsible Federal Budget
Concept_Stock Market_Recession

CBO Updates Economic Baseline in Wake of COVID-19

Apr 2, 2020 | Economics

In anticipation of a score of the Families First Coronavirus Response Act (the second coronavirus response bill), the Congressional Budget Office (CBO) released a blog post outlining its latest projections of the economy in the wake of the novel coronavirus (COVID-19) pandemic today. CBO's projections underscore the severity of the economic damage COVID-19 has already caused.

Specifically, CBO notes that:

  • The agency expects Gross Domestic Product (GDP) for the second quarter of 2020 to decline by at least 7 percent or at least 28 percent at the annualized rate that the Bureau of Economic Analysis will report.
  • Unemployment is expected to jump from the historically low 3.5 percent prior to COVID-19 to 12 percent in the second quarter of 2020.
  • Interest rates on ten-year Treasuries are expected to be below 1 percent during the second quarter of 2020, given unprecedented actions by the Federal Reserve and global demand for safe assets.
  • Unemployment by the end of 2021 is expected to be around 9 percent.
  • Given the possibility of later outbreaks, CBO's forecast assumes that social distancing measures will decrease by 75 percent – but not disappear entirely – by the second half of 2020.

In evaluating the Phase II legislation, CBO notes that its economic projections will be based on data available by March 27. As is its standard practice, the agency's economic projections will not reflect any macroeconomic effects from the bill itself or the $2.3 trillion third package passed more recently.

The agency emphasizes that these estimates are highly uncertain and will continue to change as the pandemic unfolds further. We will analyze the score of the second bill once it is released.