CBO Finds Rising Rates Could Explode the Debt
The Congressional Budget Office (CBO) released an analysis today of the impact of higher interest rates on the national debt relative to its February 2026 baseline.
Today, the 10-year Treasury yield closed more than 100 basis points above CBO’s prior projections, while the 3-month rate closed about 95 basis points higher.
CBO estimates that if rates average 50 basis points above their projections through 2036, deficits would grow by nearly $2 trillion. If they average 150 basis points higher, deficits would grow by $6 trillion.
Instead of rising to a record 120% of Gross Domestic Product (GDP) by 2036, under these scenarios debt would grow to between 124% of GDP and 133% of GDP. Deficits by 2036 would grow to as high as 8.8% of GDP by 2036 – nearly three times the 3% target – based on our estimates and relative to CBO’s February baseline.
High interest rates not only create immense affordability challenges, but also pose great risks to an already unsustainable fiscal outlook – which itself puts upward pressure on interest rates. Every dollar spent on interest is a dollar unavailable for other purposes and a dollar that can pull the nation closer to a debt spiral.
Policymakers should act promptly to put debt on a more sustainable path and reduce deficits toward 3% of GDP, which would both put downward pressure on interest rates and reduce the government’s vulnerability to possible rate increases.
