US debt set to surge to 120% of GDP as federal deficits spiral over next decade under new projections

The Committee for a Responsible Federal Budget (CRFB) projects a significant deterioration in the U.S. fiscal outlook, with national debt held by the public expected to surge from approximately 100% of GDP in 2025 to 120% by 2035, reaching $53 trillion from $30 trillion, under new projections incorporating recent legislation. Annual deficits are forecast to rise from $1.7 trillion to $2.6 trillion over the decade, totaling $22.7 trillion, largely driven by escalating interest costs. An alternative scenario, considering potential tariff invalidation and permanent tax relief, forecasts an even higher debt-to-GDP ratio of 134% by 2035, underscoring severe long-term fiscal challenges.

Analysis

A new analysis by the Committee for a Responsible Federal Budget (CRFB) indicates a significant worsening of the U.S. fiscal outlook, projecting that national debt held by the public will surge from approximately 100% of GDP in 2025 to 120% by 2035. In nominal terms, this represents an increase from $30 trillion to $53 trillion. The primary driver of this deterioration is a structural imbalance where federal spending, projected at 23.6% of GDP, remains persistently above its 50-year average, while revenues, at 17.5% of GDP, are only slightly above theirs. A key accelerant is the rising cost of servicing the debt, with net interest payments forecast to climb from $1 trillion (3.2% of GDP) in 2025 to $1.8 trillion (4.1% of GDP) by 2035. The report also outlines a more severe alternative scenario, contingent on adverse judicial rulings on tariffs and the permanence of certain tax cuts, which would push the debt-to-GDP ratio to 134% and annual deficits to $3.4 trillion by 2035. These projections, which incorporate recent legislative and administrative actions, underscore a structurally high deficit path that is notably worse than the CBO's January baseline, signaling escalating long-term fiscal risk.

Key Decisions for Investors

• Given the projected surge in debt issuance and net interest costs, investors should anticipate continued upward pressure on long-term Treasury yields and re-evaluate duration risk within fixed-income portfolios.
• The deteriorating fiscal trajectory heightens long-term U.S. sovereign risk, which could eventually translate into a higher risk premium for U.S. assets and potential headwinds for the U.S. dollar, warranting consideration of portfolio diversification and currency hedging.
• Closely monitor legislative and judicial outcomes related to tax and tariff policies, as the significant divergence between the baseline and alternative scenarios highlights their outsized impact on future deficits and debt levels.
• Persistent, large-scale deficit spending may contribute to structural inflationary pressures, suggesting that investors should assess allocations to real assets and inflation-protected securities as a potential long-term hedge.