Growth of GDP per hour worked is determined by two factors. One factor is the accumulation of capital, such as structures and equipment, intellectual property products (such as computer software), and residential housing. The second factor is the growth of total factor productivity (TFP)—real output per unit of combined labor and capital in the various sectors of the economy. Most TFP growth occurs in the nonfarm business sector, which accounts for about three-quarters of economic activity. Several trends and developments underlie CBO’s projection of TFP, including trends in labor quality (workers’ educational attainment and experience), federal investment, and climate change. Although many of those trends are unaffected by the pandemic, some may be affected in ways that could have persistent effects on output. For instance, a significant loss of effective schooling among today’s children would have lasting negative effects.

Both factors are projected to grow more slowly over the coming 30 years than they did in the preceding 30 years. Capital accumulation is projected to grow particularly slowly, in part because increased federal borrowing is projected to crowd out private investment. In contrast, growth of nonfarm business TFP is projected to accelerate from its historically slow rate of recent years and grow at an average rate only slightly slower than the average of the past 30 years.

Interest Rates. CBO expects interest rates to be lower in 2020 than they were in 2019, and short-term interest rates to remain low through 2025 before gradually rising over the remainder of the decade. In CBO’s projections, rates continue to rise from 2030 to 2050 but still remain lower than they have been historically. Notably, the interest rate on 10-year Treasury notes rises from an average of 0.7 percent in mid-2020 to 3.2 percent in 2030 and 4.8 percent in 2050—one percentage point below the 5.8 percent average recorded over the 1990–2007 period. Several factors, including slower growth of the labor force, slower productivity growth, and lower inflation than in the past, are expected to keep interest rates below their historical levels; in CBO’s projections, the effects of those three factors and others outweigh the effects of rising federal debt and other factors that tend to push interest rates above their historical levels.