CBO chief estimates US needs 5–6% real GDP growth to stabilize debt — Fortune
In the United States, Congressional Budget Office Director Phillip Swagel said that accelerating economic growth alone is unlikely to be sufficient to stabilize public debt. At a conference hosted by the Federal Reserve Bank of Minneapolis, he estimated that with interest rates in the 4–5% range, real GDP would need to grow by 5–6% annually and nominal GDP by 7–8%, Fortune reports.
Growth will not replace budget decisions
According to Swagel, faster GDP growth increases federal budget revenues, but it can also affect spending at the same time. Government spending also stimulates the economy and raises wages, which may increase Social Security payments. In addition, a strong economy usually contributes to higher interest rates and, consequently, higher debt-servicing costs.
Swagel noted that economic growth will help improve the budget situation, but is unlikely to stabilize the US fiscal trajectory on its own. In his view, policy decisions on budget revenues and expenditures will also be needed.
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Debt and the CBO forecast
According to the data cited in the article, US gross public debt stands at $40 trillion. Debt held by the public equals 100% of GDP. The CBO forecasts that the debt-to-GDP ratio will rise to 120% in 2036.
Recent data showed US real GDP growth of 2.2% in the second quarter, while even optimistic Wall Street forecasts project growth of 2.5% for the full year. US Treasury Secretary Scott Bessent previously said that the country could overcome its debt problem with economic growth of 3%. At the same time, the Penn Wharton Budget Model estimated that the pace needed to keep the debt-to-GDP ratio at 3.5–4% on average over a decade.
Swagel also warned that a sudden spike in interest rates could worsen budget problems: higher rates increase the deficit and debt, which may put pressure on rates again. In his estimate, a one-percentage-point increase in the debt-to-GDP ratio is associated with a 0.015-percentage-point rise in long-term rates.
