CBO Projects $6 Trillion in Added U.S. Deficits Under Higher Rates

The Congressional Budget Office (CBO) projects that interest rates 1.5 percentage points above its February 2026 baseline through 2036 would add $6 trillion to federal deficits, increasing the government’s borrowing burden.

That scenario raises net interest costs on debt in CBO’s baseline projections by $4.9 trillion. The baseline includes debt projected to accumulate during the period, as well as debt already outstanding. Interest on additional borrowing caused by the larger deficits adds $1.1 trillion.

In a separate scenario with all interest rates 0.5 percentage point above baseline from 2026 through 2036, cumulative deficits grow by about $1.9 trillion. Higher interest costs on baseline debt account for $1.6 trillion, while interest on the additional borrowing adds $297 billion.

Both scenarios assume that rates stay above baseline for years. They do not measure the fiscal cost of a single Federal Reserve decision. CBO also holds other economic variables constant, so the estimates do not account for economic changes that higher rates might cause.

The costs build as Treasury replaces maturing securities at higher rates. Larger deficits require more borrowing, which generates further interest costs. The estimates describe a sustained change in borrowing rates, rather than an immediate change in what Treasury pays on all its debt.

CBO’s baseline has the 10-year Treasury rate averaging 4.3% from 2026 through 2036. The average is 5.8% in its 1.5-point scenario and 4.8% in its 0.5-point scenario. Each comparison starts from the same baseline.

Treasury’s fiscal 2026 net interest outlays totaled $1.052 trillion, alongside a $1.992 trillion deficit for the year ended Sept. 30. Those are actual totals for one fiscal year; CBO’s scenarios measure additional cumulative deficits through 2036.

The Fed raised its target range by a quarter point to 3.75%–4.00% on Sept. 16. Its next policy meeting is scheduled for Oct. 27-28.