In a letter to Senator Crapo, CBO responds to a request for a description of the budgetary effects of higher inflation and interest rates. In general, if inflation was persistently higher than it is in the Congressional Budget Office’s economic forecast and if interest rates were also significantly higher but all other inputs to the budget projection process were unchanged, then projected budget deficits and debt would be larger in dollar terms, on net, throughout the 2022–2031 period. The effects on deficits and debt as a percentage of gross domestic product would depend on the specifics of the changes in inflation and interest rates.
