Faster economic growth may not be enough to stabilize America's federal debt, according to Congressional Budget Office Director Phillip Swagel, who warned that the United States faces a fiscal challenge too large to overcome through economic expansion alone.
Speaking with Minneapolis Federal Reserve President Neel Kashkari on October 8, 2026, Swagel offered a rough calculation suggesting that stabilizing the federal debt-to-GDP ratio through growth alone could require real economic expansion of approximately 5% to 6%, assuming interest rates of 4% to 5%.
That is far above the economy's 2.2% annualized growth rate in the second quarter of 2026 and exceeds the roughly 3% growth rate Treasury Secretary Scott Bessent has argued could help the country overcome its debt problems.
The warning comes as federal borrowing costs remain elevated and the CBO projects that debt held by the public will increase from 101% of gross domestic product in 2026 to 120% by 2036. The central question is not whether growth helps government finances, but whether its benefits can outpace persistent deficits and mounting interest expenses.
Why the CBO Director Says Growth Alone May Not Be Enough
During the Minneapolis Fed's October 8 research conference, Swagel explained that a stronger economy would generate additional federal tax revenue. However, economic growth can also increase certain government expenditures and put upward pressure on borrowing costs.
Higher wages, for example, can eventually affect Social Security benefits, while stronger economic activity can contribute to higher interest rates under some conditions. Those effects may offset part of the fiscal improvement generated by additional revenue.
As Fortune reported on October 10, Swagel cautioned against treating his calculations as a precise forecast. His illustrative assumptions pointed to nominal GDP growth of approximately 7% to 8%, corresponding to real growth of roughly 5% to 6%.
The distinction matters. Real GDP growth measures economic expansion after adjusting for inflation, while nominal GDP includes price changes. Because federal debt is measured in dollars, nominal economic growth is particularly relevant when calculating the debt-to-GDP ratio.
Bessent has presented a more optimistic assessment. Speaking at Southern Methodist University in September, he argued that sustained growth of approximately 3% could allow the United States to grow its way out of its fiscal difficulties.
The disagreement reflects different assessments of how much economic expansion can improve federal finances. Neither growth figure should be treated as a guaranteed outcome or as a directly comparable debt-stabilization threshold without considering the underlying assumptions.
Artificial intelligence could also influence the outlook. Swagel indicated that productivity improvements may support stronger future economic growth and that the CBO expects to incorporate its assessment of AI-related developments into its next economic projections. But additional productivity growth would not necessarily eliminate the government's fiscal imbalance.
What the CBO Projects for US Debt and Deficits
The scale of the challenge becomes clearer in the CBO's February 2026 Budget and Economic Outlook, which projects substantial federal deficits throughout the following decade under its baseline assumptions.
The agency estimates that the federal budget deficit will total approximately $1.9 trillion in fiscal 2026, equivalent to 5.8% of GDP. By 2036, it projects an annual shortfall of $3.1 trillion, or 6.7% of GDP.
For comparison, federal deficits averaged approximately 3.8% of GDP over the preceding 50 years. The projected deficits are therefore unusually large, even after accounting for the economy's size.
The CBO also expects federal debt held by the public to reach 120% of GDP by 2036, exceeding the previous historical peak of approximately 106% recorded in 1946.
Debt held by the public is not the same as gross federal debt. Gross debt also includes obligations held by government accounts, while publicly held debt is the measure generally used in the CBO's debt-sustainability projections.
Another important distinction is between the federal deficit and the national debt. A deficit is the amount by which federal spending exceeds revenue during a particular fiscal year. Debt represents accumulated borrowing over time, subject to other adjustments.
These figures are projections rather than predetermined outcomes. Economic conditions, legislation, tax revenue, spending decisions and interest rates can all change the trajectory. The February baseline also does not automatically incorporate every subsequent policy development.
Why Higher Interest Costs Complicate the Debt Outlook
Interest expenses represent one of the most difficult parts of the federal government's long-term fiscal challenge. As outstanding debt grows and Treasury securities are refinanced at higher yields, the cost of servicing federal obligations can increase.
The CBO projects that annual net federal interest outlays will rise from approximately $1 trillion in 2026 to $2.1 trillion in 2036. Relative to GDP, those costs would increase from 3.3% to 4.6% over the same period.
Net interest outlays refer to federal interest expenses after accounting for certain interest income received by the government. They are not interchangeable with gross interest payments or the yield on any individual Treasury security.
Recent financial-market developments illustrate why borrowing costs deserve attention. On October 7, the benchmark 10-year Treasury yield briefly reached approximately 5.364%, while the 30-year yield climbed to around 5.669%, according to Reuters reporting on the Treasury market.
Yields subsequently retreated as Treasury auctions attracted solid demand. By October 9, the 10-year yield was around 5.23%, demonstrating that borrowing conditions can change significantly within a few trading sessions.
Those movements do not establish that the United States faces an imminent default or that investors have stopped purchasing government debt. They do, however, illustrate the pressure that elevated market interest rates can place on future financing costs.
Inflation expectations and monetary policy also influence borrowing conditions. As explained in earlier NewsFusion365 coverage of US inflation and underlying price pressures, inflation is an important consideration for Federal Reserve policy. Treasury yields additionally reflect expectations about future rates, economic growth, inflation and the compensation investors demand for holding longer-term debt.
Importantly, a rise in market yields does not instantly increase the interest rate on every outstanding government bond. Existing fixed-rate securities generally retain their contractual payments until maturity, but higher rates can increase costs as debt is refinanced and new securities are issued.
This creates a potential feedback problem: higher interest expenses widen deficits, additional borrowing increases the debt burden, and a larger debt burden may contribute to further financing pressures. The strength of that cycle depends on economic and market conditions rather than following a fixed formula.
What Would Help Stabilize the US Debt-to-GDP Ratio?
Stabilizing federal debt relative to GDP depends on three connected factors: the economy's nominal growth rate, the effective interest rate paid on government debt, and the primary budget balance.
The primary balance measures government revenue minus spending excluding net interest costs. A primary deficit means the government is spending more than it collects even before accounting for those costs.
When nominal GDP grows rapidly, the economy's expanding dollar value can make an existing stock of debt smaller relative to GDP. But if the government continues adding debt through large deficits, the ratio can still increase.
Interest rates matter because they influence the pace at which debt-servicing expenses accumulate. When the effective borrowing rate exceeds nominal economic growth, stabilizing the debt ratio generally requires a stronger primary fiscal position than would otherwise be necessary.
Conversely, when nominal economic growth exceeds the effective interest rate, the resulting arithmetic can make a given debt burden easier to manage. That advantage does not guarantee stabilization if primary deficits remain sufficiently large.
The CBO's February projections illustrate the problem. Even though primary deficits are projected to decline from 2.6% of GDP in 2026 to 2.1% in 2036, rising net interest costs contribute to an increase in the overall deficit.
Improving the long-term trajectory could involve stronger productivity, changes in federal revenue, adjustments to spending, or some combination of those developments. Their fiscal effects would depend on the scale, timing and design of the changes, as well as their broader economic consequences.
There is no single growth percentage that guarantees fiscal sustainability under every set of circumstances. Swagel's October 8 estimate was intended to illustrate the magnitude of the challenge under particular assumptions, not establish a permanent numerical rule.
What to Watch Next
The next important development will be the CBO's updated economic and budget projections, expected in early 2027. Those forecasts should provide a clearer picture of whether anticipated productivity improvements, including developments related to artificial intelligence, materially alter the agency's growth assumptions.
Other indicators include quarterly GDP releases, federal deficit data, Treasury borrowing costs and the relationship between government revenue and spending.
Bond-market conditions will also remain significant. Sustained changes in long-term yields can influence refinancing costs, while inflation and Federal Reserve policy expectations can affect both government financing and economic activity.
For policymakers, the central challenge is that a growing economy can improve the government's capacity to support its obligations without necessarily reducing the debt burden. If deficits and interest expenses continue expanding faster than the resources available to finance them, the debt-to-GDP ratio can keep rising.
Swagel's warning therefore points to a longer-term fiscal question rather than an immediate financial emergency: whether economic growth, borrowing conditions and future budget decisions can together place federal debt on a more stable path.
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