US growth is projected to remain modest at around 2 per cent even as the federal budget deficit is set to hit a record $1.85 trillion in fiscal 2026, highlighting a widening gap between political growth projections and CBO estimates
The United States is projected to run a record budget deficit of $1.853 trillion in fiscal 2026, even as economic growth remains moderate, according to fresh estimates from the Congressional Budget Office (CBO). The shortfall would amount to 5.8 per cent of GDP—virtually unchanged from fiscal 2025’s $1.775 trillion deficit.
For an economy that is neither in recession nor fighting a war, and with unemployment expected to remain below 5 per cent over the coming decade, such sustained red ink is historically unusual.
The CBO estimates that the deficit-to-GDP ratio will average 6.1 per cent over the next 10 years, rising to 6.7 per cent by fiscal 2036. That path is well above the roughly 3 per cent level articulated by Treasury Secretary Scott Bessent as a longer-term fiscal objective.
The divergence underscores a widening gap between political growth optimism and the more restrained projections of the non-partisan budget watchdog.
Growth projections fall short
The CBO expects real GDP to grow 2.2 per cent in 2026 on a fourth-quarter basis, before easing to an average of around 1.8 per cent annually for the rest of the decade.
That outlook is markedly below projections from the Trump administration, which has pointed to growth in the 3–4 per cent range next year. Some officials have forecast even stronger spurts driven by factory investments, reshoring and artificial intelligence infrastructure.
However, the CBO assumes only modest productivity gains from AI, limiting the boost to output and revenues. Under this baseline, faster growth is unlikely to offset the fiscal impact of tax cuts and elevated spending embedded in current policies.
The White House has argued that the CBO has historically underestimated economic performance and that stronger expansion will narrow the deficit ratio over time. For now, the official projections suggest otherwise.
A structural deficit
Unlike the pandemic years, when emergency stimulus drove deficits to extraordinary levels, today’s borrowing appears structural.
The US is running deficits near 6 per cent of GDP without a crisis trigger. Over the coming decade, demographic pressures are projected to widen the fiscal gap. Rising Social Security and Medicare outlays, tied to the ageing Baby Boom generation, continue to push mandatory spending higher.
Discretionary spending restraint provides some offset, but it is increasingly eclipsed by surging interest costs.
Interest burden climbs
Net interest payments on federal debt are projected to more than double over the next decade, reaching roughly $2 trillion by fiscal 2035, up from about $970 billion in fiscal 2025.
The CBO expects yields on 10-year Treasury notes to remain around current levels or slightly higher, limiting hopes of sharply lower borrowing costs. As deficits persist, total public debt is forecast to climb to $56.152 trillion by 2036—equivalent to 120 per cent of GDP—up from $30.172 trillion, or 99 per cent of GDP, in fiscal 2025.
By 2030, the debt-to-GDP ratio is expected to surpass its previous post-World War II peak.
Tariff revenues are projected to trim deficits at the margin, partially offsetting the fiscal cost of tax cuts and other measures. Yet the overall trajectory remains one of expanding debt.
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