Projections of Deficits and Debt Under Alternative Scenarios for Interest Rates and the Budget
Report
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CBO responds to a request for an analysis of projected deficits and debt under a scenario with higher interest rates and a scenario with a constant debt-to-GDP ratio.
This letter responds to a request for an analysis of projected deficits and debt under alternative scenarios for interest rates and the budget. Specifically, CBO was asked how its baseline projections of deficits and debt, which generally reflect current law, would change under two alternative scenarios:
Under a scenario in which interest rates increased until they were 1 percentage point higher than in CBO's extended baseline, primary deficits—that is, deficits excluding net outlays for interest—would average 2.3 percent of GDP over the 2026–2056 period, 0.2 percentage points larger than in the extended baseline. Debt held by the public would grow to 222 percent of GDP in fiscal year 2056, 47 percentage points larger than in the extended baseline.
Under a scenario in which the debt-to-GDP ratio remained at its 2026 level of 101 percent, primary deficits would average 0.2 percent of GDP over the 2026–2056 period, 1.9 percentage points smaller than in CBO's extended baseline.
By comparison, in CBO's extended baseline projections of the federal budget and the economy, debt held by the public increases from 101 percent of GDP in 2026 to 175 percent of GDP in 2056. Primary deficits average 2.1 percent of GDP over that period; average annual GDP growth is 3.8 percent, and the average interest rate on federal debt held by the public is 4 percent.
