Higher Rates Would Lift U.S. Debt to 222% of GDP by 2056
A modeled scenario puts debt 47 percentage points above the extended baseline, while raising deficits and slowing average annual GDP growth.
Federal debt held by the public would climb to 222% of gross domestic product in fiscal 2056 if average interest rates rise gradually to 1 percentage point above the extended baseline, a scenario that would also widen deficits and slow economic growth.
That debt ratio would be 47 percentage points above the baseline projection of 175% of GDP. The higher-rate path is a modeled assumption, not a forecast that interest rates will reach that level.
The Sept. 24 analysis was requested by Sen. Jeff Merkley. Before broader economic effects are included, the interest-rate gap grows by about 5 basis points annually until it reaches 1 percentage point above the extended baseline.
Primary deficits would average 2.3% of GDP from fiscal 2026 through 2056, or 0.2 percentage point above the baseline. By fiscal 2056, the total deficit would reach 14.0% of GDP, 4.9 percentage points above the baseline.
Total deficits from fiscal 2026 through 2036 would be about $1.5 trillion higher than under the baseline.
The scenario also includes feedback from the broader economy. Higher federal borrowing would reduce resources available for private investment, lowering capital formation and economic growth. Average annual GDP growth would be 0.1 percentage point slower from fiscal 2026 through 2056, while the average interest rate on federal debt would be 0.7 percentage point higher.
CBO Director Phillip L. Swagel wrote, “The resulting increase in debt as a percentage of GDP increases interest rates on Treasury securities even further. Thus, macroeconomic effects push interest rates above the initial boost that was built into the scenario.”
Under the extended baseline, debt held by the public rises from 101% of GDP in fiscal 2026 to 175% in fiscal 2056. Net interest outlays rise from 4.6% of GDP in 2036 to 6.9% in 2056.
The 10-year Treasury yield was 5.17% and the 30-year yield was 5.49% on Sept. 25. The rates were based on indicative bid-side quotations obtained at or near 3:30 p.m. ET (19:30 UTC).
“The effects of increases in interest rates are uncertain because they depend on the reasons for those increases,” Swagel wrote.
