US Debt To Explode Past World War II Highs, Threatens Growth For Decades: CBO

The U.S. economy is heading towards a historic surge in public debt, one that's set to eclipse wartime records and cast a long shadow over future economic growth and policy freedom.

In a report released Thursday, the Congressional Budget Office unveiled its latest long-term budget outlook. It forecasts U.S. fiscal and economic trends over the next 30 years.

The message was stark: the country's debt load, driven by ballooning deficits and rising interest costs, will break historical records, hinder economic growth, and amplify financial stability risks.

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US Public Debt On Track To Reach 156% Of GDP By 2055

Federal debt held by the public, as a share of gross domestic product (GDP), is projected to reach 107% by 2029. This would eclipse the previous high set after World War II.

But the CBO doesn't see the climb stopping there. By 2055, debt will hit a staggering 156% of GDP and remain upward.

This explosive rise is largely due to chronic budget deficits. Over the next three decades, the federal deficit is expected to average 6.3% of GDP. That’s far higher than the 50-year historical average of 3.7%. By 2055, that deficit is seen reaching 7.3% of GDP.

That trajectory "would slow economic growth, push up interest payments to foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook," the CBO wrote.

It also warned the ballooning debt "could cause lawmakers to feel constrained in their policy choices."

Why Are U.S. Budget Deficits So High?

The CBO attributes these deficits to two primary culprits: rising interest payments on debt and persistent primary deficits, which exclude interest costs.

Primary deficits are forecast to average 2% of GDP over the next 30 years, compared to 1.7% over the past five decades.

Spending is also part of the story, with the government's outlays hitting 26.6% of the GDP by 2055. A major portion of that will come from ballooning Medicare and Social Security costs as the population ages and healthcare expenses continue to climb.

"Rising interest costs; spending for the major health care programs, particularly Medicare; and spending for Social Security, especially over the next decade, drive that growth," the CBO said.

By 2055, spending on major healthcare programs is expected to account for 8.1% of GDP, up from 5.8% today.

Aging Population Leads To Slower Economic Growth

Slowing population growth—particularly among working-age individuals—will limit labor force expansion and, by extension, overall economic output.

The number of people aged 65 and older will grow faster than those in the prime working-age bracket, between 25 and 54, leading to a shift in the demographic structure. By 2033, the U.S. population would begin to shrink without immigration, the CBO said.

This demographic drag will cap real economic growth, with the economy expanding more slowly than it has over the past 30 years. Increased federal borrowing further dampens productivity and output, compounding long-term growth headwinds.

Real GDP growth is projected to decelerate steadily over the next three decades. The CBO estimates average annual growth of 2% from 2025 to 2035, slowing to 1.6% between 2036 and 2045 and further down to just 1.4% from 2046 to 2055—reflecting a weakening labor force and productivity drag from rising debt.

Risks Of Financial Disruption Could Threaten The Dollar Reserve Status

While the inflation picture appears stable, with rates projected to hover around the Federal Reserve's 2% target from 2027 onward, rising federal debt introduces new vulnerabilities to the outlook.

The interest rate on 10-year Treasury notes is expected to remain close to its historical average over the next three decades, reflecting a tug-of-war between rising debt issuance and a slower-growing labor force.

But the risks of disruption are real. "The risk of a fiscal crisis—that is, a situation in which investors lose confidence in the value of the U.S. government's debt—would increase," the report said.

Such an event could "cause interest rates to rise abruptly and other disruptions to occur."

The report added that the U.S.'s fiscal position would be “more vulnerable to an increase in interest rates, because the larger the debt is, the more an increase in interest rates raises debt-service costs."

The consequences go beyond domestic concerns. If investors fear that inflation could rise, "expectations of higher inflation could erode confidence in the U.S. dollar as the dominant international reserve currency."

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