Deficits in an age of prosperity
The U.S. government’s deficit remains alarmingly high even in a time of moderate growth and low unemployment. The Congressional Budget Office (CBO) projects a federal deficit of $1.7 trillion in FY 2025, roughly 6 percent of GDP, with no major recession in sight. Persistent deficits during expansionary years mark a shift in fiscal norms—reflecting aging demographics, defense spending, and structural entitlement costs.
Table 1. U.S. Federal Finances Snapshot
| Metric | 2023 | 2024 | 2025 (f) |
|---|---|---|---|
| Federal Deficit ($ T) | 1.7 | 1.6 | 1.7 |
| Debt Held by Public (% GDP) | 97 | 99 | 101 |
| Interest Payments ($ B) | 659 | 870 | 930 |
| Nominal GDP Growth (%) | 5.9 | 4.3 | 3.1 |
Sources: CBO, U.S. Treasury, BEA.
Table 2. Global Context: Public Debt (% GDP)
| Country | 2019 | 2025 (f) |
|---|---|---|
| United States | 80 | 101 |
| Canada | 31 | 73 |
| Japan | 238 | 252 |
| Germany | 59 | 65 |
Source: IMF Fiscal Monitor 2025.
What keeps the system stable
Despite ballooning debt, U.S. Treasury securities remain the world’s benchmark “safe asset.” Global investors continue to absorb issuance at modest spreads, aided by the dollar’s dominance and strong demand from pension and insurance funds.
Risks on the horizon
The danger lies in compounding interest costs. If rates remain near 4 percent, net interest could exceed defense spending by 2026. Fiscal crowding-out may follow, limiting policy flexibility in the next downturn.
Strategic takeaway
Executives should assume higher baseline yields and slower fiscal stimulus capacity. Infrastructure and climate-transition initiatives will depend increasingly on private-public financing structures rather than direct federal outlays.