Debt and deficits won’t be as bad as feared but are still dangerous, CBO says

Finance news

Both the nation’s debt and deficit will grow more slowly than previously forecast, according to new government data, the result of lower interest rates and reduced disaster spending.

The Congressional Budget Office estimated Tuesday that the national debt will rise to 141% of the economy over the next 30 years — 11 percentage points lower than the agency projected last year. The primary deficit, or the gross debt minus interest payments, is expected to equal 2.4% of GDP this year, down about 0.3 percentage points from last year’s forecast. By 2048, the primary deficit will hit 3% of GDP, about 0.2 percentage points lower than predicted last year.

The agency reduced its forecast following lower than expected spending on emergencies such as wildfires and hurricanes. Projections for Social Security outlays are also slightly below last year’s levels because of a reduction in the number of beneficiaries, the agency said.

But one of the main factors holding down the projections are expectations for lower long-term real interest rates, or the nominal level minus inflation.

Between 1990 and 2007, the rate on the 10-year Treasury notes averaged 2.9%. In Tuesday’s report, the CBO expected that real rate to hit 1.4% by 2029 and 2.2% in 2049.

Despite such low rates, the CBO still warned that the nation’s debt remains on an unsustainable course.

“The prospect of such large deficits over many years, and the high rising debt that would result, poses substantial risks for the nation and presents policymakers with significant challenges,” the agency stated.

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