By CBO’s Economic Scenarios and Budgetary Implications Team.

This paper illustrates how the Congressional Budget Office’s July 2021 baseline budget projections would have differed if the agency had used two alternative economic forecasts. Because interest rates on Treasury securities are especially important for budget projections, CBO examined the budgetary implications of two scenarios with divergent paths for those rates. Specifically, CBO started with information from the Blue Chip Economic Indicators to construct the scenarios:

The high-sixth scenario is based on the average values of projections for several variables—including inflation and the growth of gross domestic product after removing the effects of inflation (real GDP)—from the six Blue Chip forecasters (about one-sixth of the total) with the highest average interest rate projections for 2022 and 2023.

The low-sixth scenario is based on the average values of projections for the same variables from the six Blue Chip forecasters with the lowest average interest rate projections for 2022 and 2023.

CBO used additional data about interest rates, inflation, real GDP, and the unemployment rate from Blue Chip forecasters for 2024 to 2031 and a statistical model to project the other variables that are used to estimate the effects on the budget over the 10-year period (2022 to 2031). Using its simplified model of how macroeconomic changes would affect the federal budget, CBO found the following:

Projected deficits would be $2.1 trillion larger from 2022 to 2031 under the high-sixth scenario (totaling $13.8 trillion) than under the low-sixth scenario ($11.7 trillion).

Despite a greater amount of debt in dollar terms under the high-sixth scenario, federal debt held by the public as a percentage of GDP would total about 101 percent at the end of 2031 under both scenarios. That outcome would occur because the ratio of the growth rate of debt to the growth rate of nominal GDP would be about the same in the two scenarios.