The Congressional Budget Office estimates that federal debt held by the public could reach 222% of gross domestic product in fiscal year 2056 under a hypothetical scenario in which the average interest rate on federal debt rises to 1 percentage point above CBO’s extended baseline. The result would be 47 percentage points above the 175% of GDP debt ratio projected under the baseline.
The finding comes from CBO’s September 24, 2026 letter, Projections of Deficits and Debt Under Alternative Scenarios for Interest Rates and the Budget, prepared in response to a request from Senate Budget Committee Ranking Member Jeff Merkley. The complete September 24 CBO document and Figures 1–2 are the primary record for the analysis.
But the document does not forecast that the Federal Reserve will raise rates by 1 percentage point, nor does it predict that federal debt will actually reach 222% of GDP. CBO is testing a hypothetical long-term interest-rate path and then allowing its budget and economic model to calculate what would happen. That distinction is central to understanding the report.
What the September 2026 CBO document actually says
CBO’s extended baseline starts with federal debt held by the public at 101% of GDP in fiscal 2026 and projects it to rise to 175% of GDP in 2056. Over the 2026–2056 period, primary deficits average 2.1% of GDP, average annual GDP growth is 3.8%, and the average interest rate on federal debt held by the public is 4%.
The higher-rate scenario changes that path. CBO says the average interest rate on federal debt begins rising above the baseline in 2026. Before incorporating broader macroeconomic effects, the difference increases by about 5 basis points per year until it reaches 1 percentage point. One basis point is one-hundredth of a percentage point.
The resulting fiscal numbers move materially higher. Primary deficits over fiscal years 2026 through 2036 would be about $178 billion larger than in CBO’s baseline. By 2056, the primary deficit would reach 2.6% of GDP, or 0.4 percentage point above the extended baseline.
Total deficits over 2026–2036 would be about $1.5 trillion larger. In 2056, the total deficit would reach 14.0% of GDP, which is 4.9 percentage points above the extended baseline.
And debt held by the public would reach 222% of GDP, versus 175% in the baseline. The 47-percentage-point difference is directly stated by CBO. As an Investozora calculation, 47 divided by 175 equals roughly 26.9%, meaning the projected debt-to-GDP ratio in the higher-rate scenario is about 27% above the baseline ratio in 2056.
Figure 2, CBO PDF, p. 7 shows the two debt paths starting together at 101% of GDP in 2026 and progressively separating, with the higher-interest-rate scenario reaching 222% by 2056.
Federal debt held by the public under CBO’s extended baseline and two alternative scenarios, fiscal years 2026–2056
Source: CBO, Sept 24, 2026, Figure 2 and supplemental data. Investozora visualization based on CBO data.
CBO’s higher-interest-rate scenario sends federal debt held by the public to 222% of GDP by 2056, compared with 175% under the extended baseline and 101% under a scenario that keeps the debt-to-GDP ratio at its 2026 level.
Higher interest costs create a broader economic feedback loop
The most important part of the document is not simply the larger interest bill. CBO models a sequence in which higher interest rates increase the government’s interest costs. Higher interest costs increase total deficits, and the additional borrowing required to finance those deficits reduces resources available for private investment. CBO says the resulting decline in private investment leaves the economy with less capital than otherwise.
With less capital available to workers, the return on capital rises. CBO’s model then produces higher interest rates, including higher rates paid by the federal government. At the same time, the resulting increase in federal debt relative to GDP puts additional upward pressure on Treasury interest rates.
In simplified form, the mechanism is: Higher rates → higher interest costs → larger deficits → more borrowing → less private investment → slower GDP growth → higher debt-to-GDP → additional upward pressure on interest rates. This is why the September document is materially different from a simple estimate of the cost of paying higher interest on existing debt.
For readers tracking Treasury markets, the distinction between Federal Reserve policy rates and longer-term federal borrowing costs is important. Investozora’s coverage of 10-year Treasury yields and Fed policy and the relationship between the federal funds rate and Treasury yields provides additional market context.
CBO estimates that average annual GDP growth would be 0.1 percentage point slower over 2026–2056 in the higher-rate scenario. The average interest rate on federal debt would be 0.7 percentage point higher over that period than in the extended baseline.
That 0.7-point figure is a critical qualification. The scenario’s initial interest-rate differential eventually reaches 1 percentage point before macroeconomic effects are incorporated. The 0.7-point figure is the average difference in the federal debt interest rate across the full 30-year period after the model incorporates the wider economic effects. It should not be described as a forecast of a permanent 1-point increase in the government’s borrowing rate.
Investozora’s higher-interest-rates and borrowing-costs analysis provides related background on how changes in rates transmit through the financial system.
This is not a Federal Reserve rate-hike forecast
CBO’s September letter does not identify the Federal Reserve as the cause of the hypothetical increase. In fact, CBO explicitly says the effects of higher interest rates are uncertain because they depend on why rates rise. The agency does not specify the factors causing rates to increase in this scenario and therefore excludes the additional economic and budgetary effects that those causes might independently produce.
That means the report should not be rewritten as a prediction that the Fed will raise its policy rate, that inflation will force a rate increase, or that Treasury yields are certain to rise by 1 percentage point. It is a sensitivity analysis of the federal budget and economy to a higher interest-rate path.
That distinction also matters because the federal funds rate, Treasury yields and the average rate paid on federal debt are related but different measures. Investozora’s Federal Reserve policy coverage and federal funds rate history provide the relevant institutional context.
What changed from CBO’s earlier interest-rate analysis?
The September letter explicitly cites CBO’s April 21, 2026 report, How Changes in Economic Conditions Might Affect the Federal Budget: 2026 to 2036, as the previous analysis of a scenario with higher interest rates.
The April analysis was substantially narrower. It tested a scenario in which all interest rates, including rates on three-month Treasury bills and 10-year Treasury notes, were 0.1 percentage point higher each year than CBO’s forecast, while other variables were kept at their forecast values. CBO estimated that this would make cumulative deficits $379 billion larger over 2027–2036.
The September analysis changes the framework in three important ways. First, the horizon expands from 11 years to 30 years, covering 2026–2056. Second, instead of a fixed 0.1-percentage-point annual interest-rate deviation, the new scenario increases the differential by roughly 5 basis points annually until it reaches 1 percentage point.
Third, and most importantly, the September analysis incorporates the budgetary effects of changes in the size of the economy caused by higher interest rates. CBO explicitly says those additions make the estimated effects on deficits and federal debt larger than those in the April analysis. The April 2026 CBO report therefore should be treated as a prior analytical framework, not as a superseded version of the September document.
CBO’s May 28, 2025 long-term alternative-scenarios report provides another useful direct comparison. In that analysis, CBO likewise increased the average interest rate on federal debt by 5 basis points in 2025, another 5 basis points in 2026, and so on. Under that scenario, debt reached 204% of GDP in 2055, compared with 156% in that report’s baseline.
That 2025 document is not a superseded version of the September 2026 report either. It used a different baseline, a different starting year and a different long-term economic projection set. The comparison nevertheless shows that CBO has continued using a recurring long-run framework in which higher federal borrowing costs can reinforce the debt trajectory through macroeconomic effects.
The 2026 baseline itself has a defined information cutoff
The extended baseline underlying the September analysis comes from CBO’s February 25, 2026 long-term budget data. CBO says those projections generally show what the budget and economy would look like over the next 30 years if current laws generally remained unchanged.
The September letter specifies the dates underlying that baseline. The demographic projections reflect laws and policies in place as of September 30, 2025. The economic projections reflect trade policy as of November 20, 2025, plus economic developments and laws in place as of December 3, 2025. The budget projections incorporate legislation that had passed both chambers of Congress as of January 14, 2026.
CBO’s February 2026 Long-Term Budget Outlook Data also states that those long-term projections do not account for the budgetary or economic effects of the Supreme Court’s February 20, 2026, ruling on tariffs. That does not change what the September scenario calculates. It establishes the boundaries of the baseline from which the hypothetical starts.
Investozora’s existing coverage of the FY2026 federal deficit and how the U.S. Treasury borrows money can provide current-system context without treating this CBO scenario as a current-law forecast through September.
CBO’s second scenario shows what keeping debt at 101% of GDP would require
The September letter does not examine only higher rates. Its second scenario holds the debt-to-GDP ratio at its 2026 level of 101% throughout the entire 2026–2056 period.
Under that scenario, primary deficits over 2026–2036 would be about $7.3 trillion smaller than in CBO’s baseline. Total deficits would be about $9.1 trillion smaller over the same period. In 2056, the primary deficit would be 0.2% of GDP, while the total deficit would be 3.5% of GDP.
There is an important numerical distinction here. CBO says the 2056 primary deficit is 2.0 percentage points below the extended baseline. Its summary says primary deficits average 0.2% of GDP over 2026–2056, 1.9 percentage points below the baseline average. Those are different comparisons and should not be conflated.
CBO does not prescribe the fiscal policy that would achieve the constant-debt scenario. It says primary deficits could be reduced through lower noninterest spending, higher revenues or a combination of the two.
Because the agency does not specify which policy changes would occur, the model does not include the different effects those policies could have on households’ incentives to work and save. This is another important limit: the report quantifies a fiscal condition, not a specific legislative package for achieving it.
What the 222% projection does and does not establish
The September CBO document establishes a clear conditional result: under the specified higher-interest-rate scenario, debt held by the public reaches 222% of GDP in 2056, compared with 175% in the extended baseline.
It does not establish that 222% will occur. It does not identify a particular Fed decision as the cause. It does not include every possible economic effect of whatever real-world event might push interest rates higher. And it does not specify the taxes or spending changes required under its constant-debt scenario.
CBO’s analysis instead demonstrates the sensitivity of the long-term debt path to borrowing costs and the interaction between interest expenses, deficits, federal borrowing, private investment, GDP and Treasury rates.
CBO’s Figure 2 makes that conditional nature visible: the three paths begin at approximately the same 101% debt-to-GDP ratio in 2026, but the higher-interest-rate line progressively separates from the extended baseline and reaches 222% in 2056, while the constant-debt scenario remains at 101%.
CBO has also previously cautioned that its practice of not reporting specific modeled outcomes once debt exceeds 250% of GDP should not be interpreted as identifying 250% as a fiscal tipping point. The agency says assessing economic effects at such debt levels would require reevaluating relationships in its models because uncertainty grows as projected debt moves far beyond historical experience.
For readers watching Treasury borrowing costs, the useful conclusion is therefore conditional rather than predictive: a persistently higher interest-rate environment can produce a significantly steeper long-term federal debt trajectory in CBO’s model, partly because the higher rates feed back into borrowing, investment and economic growth.
