ECONOMIC REPORT OF THE PRESIDENT

kept rates low across a wide range of debt securities with long maturities.
Consistent with the Federal Reserve’s forward policy guidance at the time
of the forecast, long-term interest rates are projected to rise. Eventually, real
interest rates (that is, nominal rates less the projected rate of inflation) are
predicted to move toward, but still remain well below, their historical average.
These interest-rate paths are close to those projected by the consensus of
professional economic forecasters. During the past several years, consensus
forecasts for long-term interest rates and long-term economic growth have
fallen, reflecting changes in views on productivity, demographics, the term
premium, and global saving and investment behavior.
GDP Growth over the Long Term
As discussed earlier, the long-run growth rate of the economy is
determined by the growth of its supply-side components, including those
governed by demographics and technological change. The growth rate that
characterizes the long-run trend in real U.S. GDP—or potential GDP—plays
an important role in guiding the Administration’s long-run forecast. After
a brief period of above-trend growth in 2017 and 2018, real output growth
shifts down to its long-term trend rate of 2.2 percent a year. These growth
rates are slower than historical averages mostly because of the aging of the
baby-boom generation into the retirement years and because of slower
growth of the working-age population (Box 2-5).
The long-run potential GDP growth rate is 0.5-percentage point
higher than the growth rate that would be expected if current law is
unchanged. Specifically, the forecast assumes the President’s policies,
including substantial investments in transportation infrastructure, business
tax reform, universal preschool (and other policies to boost female labor
force participation), free community college, reforms to the immigration
system, policies to expand cross-border trade, and approximately $2 trillion
in deficit reduction (Box 2-9). A different set of policy assumptions would
lead to different assumptions for potential GDP growth.
The potential real GDP projections are based on the assumption that
the President’s full set of policy proposals, which would boost long-run
output, are enacted (Box 2-9).18
Table 2-2 shows the Administration’s forecast for the contribution of
each supply-side factor to the growth in potential real GDP: the workingage
population; the rate of labor force participation; the employed share
of the labor force; the length of the workweek; labor productivity; and the
difference between productivity growth for the economy as a whole and the
18
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