4 minEconomy
CBO Director Warns Growth Alone Cannot Stabilize U.S. Debt
Congressional Budget Office Director Phillip Swagel said the U.S. would need sustained real GDP growth of 5% to 6% to keep debt in check, far above current forecasts and Treasury Secretary Scott Bessent's 3% target.
Congressional Budget Office Director Phillip Swagel warned that faster economic growth alone is unlikely to stabilize the U.S. fiscal trajectory, even if GDP expands at more than double its current pace. Speaking Thursday at a Federal Reserve Bank of Minneapolis conference, Swagel said the math required to keep the debt-to-GDP ratio flat is far more demanding than commonly assumed.
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. Stabilizing that ratio, Swagel said, would require nominal GDP growth of 7% to 8% and real GDP growth of 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% for the full year.
Swagel's estimate sharply exceeds the 3% growth target cited by Treasury Secretary Scott Bessent, who said last month at Southern Methodist University that «with 3% growth, we grow our way out of this.» Other estimates fall between the two. The Penn Wharton Budget Model has calculated that growth would need to average 3.5% to 4% over a decade to maintain the debt-to-GDP ratio.
The CBO director explained that growth is not a simple fiscal cure because federal spending itself boosts growth, lifting wages that in turn raise Social Security benefit outlays. A robust economy also tends to push interest rates higher, increasing the cost of servicing the debt. «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 enough to close the gap. Swagel said the CBO has detected an increase in total factor productivity, a measure of efficiency across labor, capital and other inputs, and that its next economic forecasts due early next year will incorporate views on AI. Future growth will be stronger, he said, but the budget deficit is so deep that even AI-powered gains will not be sufficient.
Swagel also warned that an economic shock sending interest rates sharply higher would trigger a damaging fiscal feedback loop. «So there's almost like a turbocharger,» he said. «An interest rate shock feeds into the deficit, feeds into the debt, feeds back into interest rates.»
So far, the bond market has absorbed the debt issued by the Treasury to fund the budget deficit, but long-term yields have surged to their highest levels in 24 years. Part of that rise reflects the strong economy, expectations for Fed rate hikes, high oil prices keeping inflation elevated, and a wave of AI hyperscaler debt competing for bond market demand. The sheer scale of U.S. debt is also a factor. Swagel estimated that a 1-percentage-point increase in the debt ratio currently adds about 0.015 percentage points to long-term interest rates. «So it's modest, but the fiscal trajectory is really quite challenging,» he said. «It adds up, and of course there's that turbocharger type effect that I mentioned where it feeds back into deficits.»
The remarks underscore the narrowing set of options available to policymakers. With growth unlikely to deliver the needed revenue on its own, the debate is shifting toward politically difficult choices over tax increases and spending reductions. The CBO's updated forecasts early next year will offer the first official glimpse of how AI-driven productivity gains might alter that calculus, though Swagel's comments suggest they will not change the fundamental challenge.
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