CBO Chief: US Needs 5%-6% Growth to Fix Debt—Not Bessent's 3%

The U.S. economy would need real GDP growth of 5%-6% to stabilize the national debt—more than double its current pace and nearly double the 3% threshold Treasury Secretary Scott Bessent has cited, according to Congressional Budget Office Director Phillip Swagel.

Gross federal debt now stands at $40 trillion, with publicly held debt equal to 100% of GDP. The CBO projects the debt-to-GDP ratio will climb to 120% by 2036. Swagel laid out the arithmetic on Thursday at a Minneapolis Fed conference.

Assuming interest rates of 4%-5%, he estimated that stabilizing the debt would require nominal GDP growth of 7%-8% and real growth of 5%-6%. The U.S. economy grew 2.2% in real terms in the second quarter. Even bullish Wall Street forecasts put full-year growth at 2.5%.

Why can't growth alone fix the debt?

Swagel acknowledged that faster growth lifts federal revenue. But the mechanics cut both ways, he argued:

• Federal spending itself boosts growth, raising wages and pushing up Social Security outlays.
• A strong economy tends to send interest rates higher, adding to debt-service costs.

"So growth will help, but it's probably not plausible that growth alone will 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."

How does this compare with Bessent's view?

Swagel's back-of-the-envelope figures far exceed the benchmark offered by Treasury Secretary Scott Bessent. "With 3% growth, we grow our way out of this," Bessent said last month at Southern Methodist University. "We'll get to the other side of this Iran conflict, and the underlying economy is very, very strong, and I think reaccelerating."

Other estimates fall between the two. The Penn Wharton Budget Model calculates that growth would have to average 3.5%-4% over a decade to hold the debt-to-GDP ratio steady.

Can AI deliver the needed growth?

Minneapolis Fed President Neel Kashkari asked Swagel whether artificial intelligence could supercharge growth. Swagel said the CBO has detected an increase in total factor productivity, which measures the efficiency of labor, capital and other inputs. The CBO's next economic forecasts, due early next year, will incorporate its views on AI, and Swagel expects future growth to be stronger as a result.

He still warned that the budget deficit is so deep that even AI-powered growth won't be enough to close the gap on its own.

What happens if interest rates spike?

Swagel flagged the risk of an economic shock that sends rates up suddenly, describing a self-reinforcing fiscal loop. "So there's almost like a turbocharger," he said. "An interest rate shock feeds into the deficit, feeds into the debt, feeds back into interest rates."

For now, the bond market is absorbing all the debt the Treasury issues to fund the deficit, but long-term yields have surged to their highest levels in 24 years. Drivers include the strong economy, expectations for Fed rate hikes, high oil prices keeping inflation elevated, and a flood of AI hyperscaler debt competing for bond demand.

The scale of U.S. debt itself plays a role, though a small one for now. Swagel said a 1-percentage-point increase in the debt ratio raises long-term interest rates by 0.015 percentage points. "So it's modest, but the fiscal trajectory is really quite challenging," he said. "It adds up, and of course there's that turbocharger type effect that I mentioned where it feeds back into deficits."

With the CBO's next forecast round due early next year, the first test will be whether its AI-adjusted growth assumptions move the debt math at all—or confirm that only tax and spending decisions can.