The Congressional Budget Office regularly publishes reports presenting its baseline projections of what the federal budget and the economy would look like in the current year and over the next 10 years if laws governing taxes and spending generally remained unchanged. This report is the latest in that series.
The Budget Outlook
Deficits
In CBO’s projections, the federal budget deficit in fiscal year 2024 is $1.9 trillion. Adjusted to exclude the effects of shifts in the timing of certain payments, the deficit amounts to $2.0 trillion in 2024 and grows to $2.8 trillion by 2034. With such adjustments, deficits equal 7.0 percent of gross domestic product (GDP) in 2024 and 6.5 percent of GDP in 2025. By 2027, as revenues increase faster than outlays, they drop to 5.5 percent of GDP. Thereafter, outlays generally increase faster than revenues. By 2034, the adjusted deficit equals 6.9 percent of GDP—significantly more than the 3.7 percent that deficits have averaged over the past 50 years.
Debt
Relative to the size of the economy, debt swells from 2024 to 2034 as increases in interest costs and mandatory spending outpace decreases in discretionary spending and growth in revenues. Debt held by the public rises from 99 percent of GDP this year to 122 percent in 2034, surpassing its previous high of 106 percent of GDP.
Outlays and Revenues
Federal outlays in 2024 total $6.8 trillion, or 23.9 percent of GDP; adjusted to exclude the effects of shifts in the timing of certain payments, they amount to $6.9 trillion, or 24.2 percent of GDP. With such adjustments, outlays equal 23.5 percent of GDP in 2025, stay close to that level through 2028, and then increase to 24.9 percent of GDP by 2034. The main reasons for that increase are growth in spending on programs that benefit older people and rising net interest costs. Revenues total $4.9 trillion, or 17.2 percent of GDP, in 2024. They rise to 18.0 percent of GDP by 2027, in part because of the scheduled expiration of provisions of the 2017 tax act, and remain near that level through 2034.
Changes in CBO’s Budget Projections
In CBO’s current projections, the deficit for 2024 is $0.4 trillion (or 27 percent) larger than it was in the agency’s February 2024 projections, and the cumulative deficit over the 2025–2034 period is larger by $2.1 trillion (or 10 percent). The largest contributor to the cumulative increase was the incorporation of recently enacted legislation into CBO’s baseline, which added $1.6 trillion to projected deficits. That legislation included emergency supplemental appropriations that provided $95 billion for aid to Ukraine, Israel, and countries in the Indo-Pacific region. By law, that funding continues in future years in CBO’s projections (with adjustments for inflation), boosting discretionary outlays by $0.9 trillion through 2034.
The Economic Outlook
Economic Growth
Economic growth is projected to slow from 3.1 percent in calendar year 2023 to 2.0 percent in 2024 amid higher unemployment and slightly lower inflation. CBO expects the Federal Reserve to respond by reducing interest rates, starting in early 2025. In CBO’s projections, economic growth remains steady at 2.0 percent in 2025 before settling at roughly 1.8 percent in 2026 and later years. A surge in immigration that began in 2021 continues through 2026, expanding the labor force and boosting economic output.
Inflation
The overall growth of prices is expected to slow slightly in 2024. In CBO’s projections, inflation as measured by the price index for personal consumption expenditures (PCE) falls from 2.7 percent in 2024 to a rate roughly in line with the Federal Reserve’s long-run goal of 2 percent by 2026 and stabilizes thereafter.
Interest Rates
Short-term interest rates change little in 2024 as the federal funds rate (the rate financial institutions charge each other for overnight loans) remains at its highest level since 2001. That rate begins to decline in the first quarter of 2025. Interest rates on 10-year Treasury notes fall through the end of 2026, then gradually rise.
Changes in CBO’s Economic Projections
Since February 2024, when CBO published its most recent economic forecast, the agency has raised its projections of economic growth, inflation (as measured by the PCE price index), and short-term interest rates for 2024 while lowering its projection of the unemployment rate. The differences between CBO’s current and previous forecasts generally narrow as the forecasts extend further into the future.
