CBO Director Warns Strong Growth Alone Cannot Stabilize U.S. Debt

Congressional Budget Office Director Phillip Swagel warned that faster economic growth alone is unlikely to stabilize the U.S. debt trajectory, even if GDP expands at more than double its current pace. Speaking at a Minneapolis Fed conference on Thursday, Swagel said the math required to keep the debt-to-GDP ratio flat would demand a sustained boom far beyond current forecasts.

Gross federal debt now stands at $40 trillion, with publicly held debt equal to 100% of GDP. The CBO projects the debt-to-GDP ratio will climb to 120% by 2036. To merely hold that ratio steady, Swagel estimated nominal GDP growth would need to reach 7% to 8% and real GDP growth would need to hit 5% to 6%, assuming interest rates of 4% to 5%. That is more than double the 2.2% real GDP pace recorded in the second quarter, and well above even bullish Wall Street forecasts of 2.5% full-year growth.

Swagel's rough figures far exceed what Treasury Secretary Scott Bessent has said is necessary. Bessent argued last month at Southern Methodist University that 3% growth would be enough to grow out of the debt problem, pointing to a strong underlying economy. Other estimates fall between the two views. The Penn Wharton Budget Model estimates growth would need to average 3.5% to 4% over a decade to maintain the debt-to-GDP ratio.

Swagel explained that the relationship between growth and debt is not straightforward. Stronger growth brings in more revenue, but federal spending also boosts growth, which lifts wages and increases outlays on Social Security benefits. A robust economy also tends to push interest rates higher, adding to debt interest costs. «So growth will help, but it's probably not plausible that growth alone will stabilize our fiscal trajectory,» Swagel said. «So then we're left with changes in revenues and changes in spending, and those are inherently political choices.»

Minneapolis Fed President Neel Kashkari asked whether artificial intelligence could supercharge growth. Swagel said the CBO has detected an increase in total factor productivity, which measures the efficiency of labor, capital, and other inputs. The CBO's next economic forecasts, due early next year, will incorporate its views on AI, and Swagel said future growth will be stronger. Still, he warned that the budget deficit is so deep that even extra AI-powered growth will not be enough.

Swagel also cautioned that an economic shock sending interest rates up suddenly would trigger a vicious fiscal cycle. «So there's almost like a turbocharger,» he explained. «An interest rate shock feeds into the deficit, feeds into the debt, feeds back into interest rates.»

So far, the bond market is absorbing all the debt the Treasury is issuing to fund the budget deficit, but long-term yields have surged to the highest levels in 24 years. Some of that reflects the strong economy, expectations for Fed rate hikes, high oil prices keeping inflation elevated, and a flood of AI hyperscaler debt competing for bond market demand. The enormous scale of U.S. debt is also a factor. Swagel noted the effect is small now, with a 1-percentage-point increase in the debt ratio leading to a 0.015-percentage-point hike on long-term interest rates. «So it's modest, but the fiscal trajectory is really quite challenging,» he added. «It adds up, and of course there's that turbocharger type effect that I mentioned where it feeds back into deficits.»

The debate over how much growth is needed comes as the U.S. faces a widening deficit and rising interest costs. Swagel's comments suggest that without changes to revenue or spending policies, the debt path remains unsustainable regardless of how fast the economy grows.

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Caroline Mercer

World News Correspondent

Caroline Mercer covers public affairs, politics, business, culture and daily news for Core Memo. The role focuses on verification, context, and clear explanations for readers.

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