CBO projections

The Congressional Budget office, released its latest report on the US economy a couple of weeks ago, on Fed 11th. The main conclusions are: (1) The federal budget deficit for fiscal year 2026 is projected at $1.9 trillion, equivalent to 5.8% of GDP. Deficits are expected to grow over the decade, reaching $3.1 trillion by 2036 (6.7% of GDP). (2) Over the 2026–2036 period, deficits are expected to average around 6.1% of GDP, well above the historical 50-year average of 3.8%. (3) Cumulative deficits contribute to federal debt held by the public rising to 120% of GDP by 2036. This point is interesting because depending on how you account for debt, we are already at 124% of debt to gdp. But the real kicker is that all these projections assume no recession in the next 10 years. If we did have an economic recession, deficit expectations could double, particularly relative to GDP. Another important aspect is what wil happen to tariff revenue, particularly in 2 years, once Trump is no longer in office. Despite being criticized for implementing them, confronting some of the U.S. historic allies, the country may not be able to lift those tariffs without drastic economic consequences.

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