• CBO Director Phillip Swagel says stabilizing the federal debt-to-GDP ratio would require sustained real GDP growth of 5–6%, far above CBO’s own 2.2% projection for 2026.
  • With publicly held debt near 101% of GDP and a total deficit of 5.8%, Swagel cautions that rising interest rates could trigger a dangerous feedback loop of larger deficits and higher borrowing costs.
  • AI-driven productivity gains may help, but CBO’s baseline already incorporates them and still projects debt climbing to 175% of GDP by 2056.

Unsustainable Trajectory

The U.S. federal debt is on an unsustainable path, and the growth needed to stabilize it is far out of reach, according to comments from Congressional Budget Office Director Phillip Swagel on October 8. Swagel estimated that the economy would need to expand at a real annual rate of 5–6%—and 7–8% in nominal terms—to keep the debt-to-GDP ratio from rising, assuming Treasury borrowing costs remain near 4–5%. That’s more than double the CBO’s own baseline forecast of 2.2% real GDP growth in 2026 and 1.8% annually from 2027 to 2036.

“The current fiscal trajectory is unsustainable,” Swagel said, according to people familiar with his remarks. He also warned of a dangerous feedback loop: higher interest rates increase federal interest payments, which widen deficits, force more borrowing, and ultimately push rates even higher. The CBO’s September analysis underscores the risk, projecting that publicly held debt would reach 175% of GDP in 2056 under its extended baseline, and 222% if interest rates gradually rise above baseline.

The Arithmetic of Stabilization

Swagel’s warning is not a forecast that the U.S. will achieve such blistering growth. Rather, it highlights the gap between the growth needed to avoid fiscal adjustment and what CBO actually expects. The CBO’s September analysis found that keeping debt at its projected 2026 level of 101% of GDP would require cumulative primary deficits to be about $7.3 trillion smaller over 2026–2036. Including interest savings, total deficits would need to be $9.1 trillion smaller—an illustrative scenario, not a policy proposal.

“Growth alone won’t solve the deficit problem,” Swagel said, noting that even with faster productivity from artificial intelligence, the CBO’s baseline still shows rising debt. The agency already incorporates wider AI adoption into its forecasts and projects AI investment and incentives from the 2025 reconciliation law to drive 3.9% growth in real business fixed investment in 2026. Yet longer-run real GDP growth remains around 1.8%, partly because an aging population limits labor-supply growth.

At the heart of the problem is the difference between the average interest rate paid on the entire outstanding debt stock and the yield on newly issued Treasury securities. CBO’s baseline combines average nominal GDP growth of 3.8%, an average federal borrowing rate of 4%, and primary deficits averaging 2.1% of GDP over 2026–2056. As debt is refinanced at higher rates, interest costs rise. Net interest spending is projected to climb from 3.3% of GDP in 2026 to 4.6% in 2036.

Policy Choices and Market Pressures

The debate is not simply growth versus spending cuts. CBO’s stabilization analysis allows for lower noninterest spending, higher revenue, or a combination, and does not recommend a specific package. Recent policy changes pull in different directions: the 2025 reconciliation act is estimated to increase cumulative deficits by $4.7 trillion through 2035, administrative immigration actions add $0.5 trillion, and higher tariffs reduce deficits by $3.0 trillion. However, CBO notes that tariffs raise inflation, and increased immigration enforcement partly offsets near-term growth.

Meanwhile, bond markets are showing sensitivity. Recent reporting indicates that Treasury yields have exceeded CBO’s earlier projections, pressuring federal interest costs. On October 8, the Treasury announced an operation to buy back up to $6 billion of 20–30-year bonds, a move aimed at supporting market functioning but not a solution to the deficit.

Budget-policy groups have emphasized the scale of the problem. The Committee for a Responsible Federal Budget estimated that roughly $9.5 trillion in ten-year deficit reduction would be needed to stabilize debt around 100% of GDP. That estimate and CBO’s September scenario are not identical calculations.

The historical precedent is the post–World War II debt peak, when publicly held federal debt reached 106% of GDP in 1946. CBO projects the current trajectory to surpass that record and reach 120% by 2036. What distinguishes today’s outlook is persistent deficits alongside rising retirement, health-care, and interest costs. The total deficit is projected to increase from 5.8% of GDP in 2026 to 6.7% in 2036, compared with a 3.8% average over the previous 50 years—even as the primary deficit narrows. Interest costs explain much of the projected deterioration.

CBO’s September analysis offers three conditional paths: the extended baseline (175% debt-to-GDP in 2056), a scenario with gradually higher interest rates (222%), and a fiscal adjustment scenario that stabilizes the ratio at 101%. The higher-rate scenario adds approximately $1.5 trillion to cumulative deficits over 2026–2036, assuming rates rise gradually by about five basis points per year until the initial increase reaches one percentage point above baseline.

The source-supported outlook is conditional: stronger productivity can improve the fiscal position, but CBO’s own forecast—including AI gains—still produces rising debt. Stabilization requires a substantially better growth-and-interest-rate combination, smaller primary deficits, or both. The evidence does not establish a date for a debt crisis or make one inevitable.

Correction: An earlier version of this article misstated the CBO’s 2026 deficit projection as 6% of GDP. The correct figure is 5.8%.