Congressional Budget Office Director Phillip Swagel said faster economic growth is unlikely to keep U.S. debt in check by itself, even if the economy expands at more than double its current pace.
Speaking at a Minneapolis Fed conference on Thursday, Swagel said growth would help by bringing in more federal revenue. But he warned that a stronger economy also tends to push interest rates higher, while wages and spending can lift outlays on Social Security benefits.
'So growth will help, but it's probably not plausible that growth alone would 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.'
Gross debt is now $40 trillion, and publicly held debt is 100% of GDP. The CBO sees the debt-to-GDP ratio rising to 120% by 2036.
Asked how much faster growth would have to be to stabilize the debt, Swagel offered rough numbers assuming interest rates of 4%-5%. He estimated nominal GDP growth would need to reach 7%-8%, and real GDP growth would have to hit 5%-6%.
That is well above the latest real GDP pace of 2.2% in the second quarter. It also exceeds the 2.5% full-year growth forecasts cited as bullish on Wall Street.
Swagel's estimate is also far above Treasury Secretary Scott Bessent's 3% view. Bessent said last month, 'With 3% growth, we grow our way out of this.' He added that 'the underlying economy is very, very strong, and I think reaccelerating.'
Swagel said the CBO has detected an increase in total factor productivity and expects future growth to be stronger. He added that the agency's next forecasts, due early next year, will incorporate its views on AI. Even so, he warned the budget deficit is too deep for AI-powered growth alone to solve.
He also said an economic shock that sends interest rates up suddenly could trigger a vicious cycle in which higher rates feed the deficit, which feeds the debt, which feeds back into rates.
The bond market is still absorbing Treasury issuance, but long-term yields have surged to the highest levels in 24 years. Swagel said the scale of U.S. debt is also a factor, though a small one on its own: a 1-percentage-point increase in the debt ratio would raise long-term interest rates by 0.015 percentage points.
For taxpayers, the message is straightforward: growth matters, but it is not a substitute for discipline. Washington cannot spend its way to solvency and then expect the market to applaud forever. Capital rewards clear rules, and the paper trail here points to a fiscal trajectory that is still getting more expensive.
