Congressional Budget Office Director Phillip Swagel said Thursday that faster economic growth alone is probably not enough to stabilize U.S. debt. At a Minneapolis Fed conference, he estimated real GDP growth would need to reach 5%-6% to do it, far above the latest 2.2% quarterly pace.
Swagel said the CBO’s next batch of economic forecasts due early next year will incorporate its views on AI. He also said the budget deficit is so deep that even extra AI-powered growth would not be enough, putting the focus back on revenues and spending choices.
Minneapolis Fed conference
Swagel said, “So growth will help, but it’s probably not plausible that growth alone will stabilize our fiscal trajectory.” He added, “So then we’re left with changes in revenues and changes in spending, and those are inherently political choices.”
He said stronger growth would bring in more federal revenue, but it would also raise wages and affect Social Security outlays. A stronger economy can also push interest rates higher, which lifts the government’s interest costs.
Debt and growth math
Swagel estimated that, assuming interest rates of 4%-5%, nominal GDP growth would have to reach 7%-8% and real GDP growth would have to hit 5%-6% to stabilize the debt. He said publicly held debt is already 100% of GDP, gross debt is now $40 trillion, and the CBO sees the debt-to-GDP ratio rising to 120% by 2036.
Those growth targets are well above the 2.2% real GDP pace in the second quarter and above Bullish Wall Street forecasts of 2.5% full-year GDP growth. The Penn Wharton Budget Model says growth would have to average 3.5%-4% over a decade to maintain the debt-to-GDP ratio.
Interest rates and AI forecasts
Swagel also warned that an interest rate shock would feed into the deficit, debt and borrowing costs in a cycle that he said has “almost like a turbocharger.” He said, “An interest rate shock feeds into the deficit, feeds into the debt, feeds back into interest rates.”
He said the CBO has detected an increase in total factor productivity and expects future growth to be stronger, but not strong enough to close the gap on its own. The agency’s next forecasts early next year will fold in its AI view before the debt path comes back into focus.
For taxpayers and federal policymakers, the message is direct: growth can help at the margin, but the numbers Swagel laid out leave no escape from decisions on spending and revenues.
