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U.S. Federal Deficit Projections Exceed Expectations Amid Policy Shifts and Tariff Revenues

Rising Deficits and Revised Forecasts

The Committee for a Responsible Federal Budget (CRFB) has revised its outlook, projecting that U.S. federal deficits will be nearly $1 trillion higher over the next decade than previously estimated by the Congressional Budget Office (CBO) in January. The new forecast anticipates a cumulative shortfall of $22.7 trillion from fiscal 2026 to 2035, compared to the previous projection of $21.8 trillion. These estimates reflect recent tax, spending legislation and the impact of tariffs implemented during the Trump administration.

Legislative Changes and Tariff Implications

The revised numbers incorporate the fiscal effects of the One Big Beautiful Bill Act alongside existing tariff policies. Although both the CRFB and the CBO exclude dynamic economic growth effects from their forecasts—a methodology that has drawn criticism from the current administration—the CRFB estimates that the tax cuts and new spending measures will add significantly to deficits. According to the CRFB, the associated cost, including interest, could surge by $4.6 trillion through 2035, compared to the CBO’s $4.1 trillion projection through 2034. However, in a partial offset, additional import duty revenues generated by the tariffs are expected to contribute $3.4 trillion over the same period.

Impact on Future Economic Metrics

In its projections, the CRFB also cited new discounting measures such as restrictions on health insurance subsidy eligibility and reductions in foreign aid and related expenditures, which together potentially save an estimated $200 billion over a decade. Despite these adjustments, rising net interest payments on the national debt are cause for concern. CRFB forecasts suggest that these payments will escalate from nearly $1 trillion (3.2% of GDP) in 2025 to $1.8 trillion (4.1% of GDP) by 2035, culminating in a total of $14 trillion over the decade.

Alternative Fiscal Scenarios and Policy Risks

Under an alternative scenario considered by the CRFB, the fiscal outlook deteriorates further, with deficits potentially reaching nearly $7 trillion above the CBO baseline. Central to this scenario is the assumption that a portion of the tariffs, amounting to $2.4 trillion in revenue over ten years, could be negated should the Court of International Trade uphold rulings against many of the new tariffs. Additionally, the extended application of temporary tax measures—including breaks on overtime, tips, and Social Security income—could add an extra $1.7 trillion in deficits. The CRFB warns that if 10-year U.S. Treasury yields remain at current levels, as opposed to declining to 3.8% as forecast by the CBO, interest costs could further increase by about $1.6 trillion through 2035.

Long-Term Debt-to-GDP Trajectories

The revised forecasts suggest a steadily worsening debt-to-GDP ratio. According to the CRFB, the ratio could rise from 118% in the CBO’s January baseline to 120% under their projected scenario, or escalate as high as 134% in the more adverse alternative scenario. These figures underscore the challenges policymakers will face in managing both current fiscal commitments and burgeoning debt in a dynamic global economic environment.

Bank of Cyprus Upgrade Signals Fresh Optimism For Greek And Cypriot Banks

Regional Banks Enter A More Favorable Cycle

Bank of Cyprus and Eurobank are well positioned to benefit from a renewed re-rating of Greek and Cypriot bank stocks, according to Cyprus-based investment firm Roemer Capital, which upgraded Bank of Cyprus to a buy rating and reaffirmed its positive view on Eurobank.

The firm cited easing geopolitical tensions, resilient economic growth in Greece and Cyprus, lower funding costs and Greece’s expected transition to developed-market status as the main factors supporting the sector.

Roemer Capital also lowered its cost of equity assumptions, updated its forecasts following first-quarter 2026 results and extended its valuation horizon to the end of 2027, raising target prices across its banking coverage.

Bank Of Cyprus Gets The Largest Upgrade

Bank of Cyprus received the biggest revision, with Roemer Capital upgrading the stock from hold to buy and setting a target price of €11.10, implying potential total upside of 27%.

The firm highlighted the bank’s strong capital generation, profitability and projected 100% dividend payout, describing it as the strongest capital-return story among the banks under coverage. Roemer Capital maintained its buy rating on Eurobank, assigning a target price of €4.90 and forecasting potential upside of 28%. The report said the bank is well placed to benefit from loan growth, improving operating performance and merger-and-acquisition synergies.

National Bank of Greece and Piraeus Bank also retained buy ratings, with expected returns ranging from 25% to 36%. Optima Bank was upgraded to buy, while Alpha Bank remained at hold on valuation grounds.

Why Growth Still Sets The Region Apart

According to Roemer Capital, Greek and Cypriot banks continue to benefit from stronger economic fundamentals than many western European peers. The report pointed to faster economic growth, healthier balance sheets, low levels of non-performing exposures, capital ratios approaching 20% and strong customer deposit bases.

Analysts expect performing loans across the sector to grow at a compound annual rate of 6% to 8% through 2028, supported by private investment, digitalisation, green manufacturing, supply-chain expansion and a gradual recovery in household lending.

The report also said the conclusion of lending under the EU Recovery and Resilience Facility is unlikely to materially affect credit growth, as banks have already shifted back towards traditional commercial lending. Roemer Capital expects Euribor to remain between 2.2% and 2.5%, a level it believes should support both lending activity and net interest margins.

Geopolitics, Valuation And Market Structure Support The Case

The report said improving geopolitical conditions have strengthened the investment outlook, noting that Brent crude prices have largely returned to pre-war levels while Greek government bond yields have stabilised at around 3.5%. Although geopolitical risks remain, Roemer Capital believes the likelihood of a major inflationary shock or significant pressure on bank profitability has eased.

Another important catalyst identified by the firm is Greece’s expected promotion to developed-market status by FTSE Russell, STOXX and MSCI over the coming months.

According to the report, the reclassification should improve liquidity and attract a broader base of international investors. Roemer Capital also said Euronext’s acquisition of the Athens Exchange is expected to strengthen market infrastructure and increase international visibility, particularly for Bank of Cyprus and Optima Bank.

The firm noted that Bank of Cyprus has already benefited from its Athens listing, with average daily trading value increasing from less than €400,000 before its September 2024 move to nearly €6 million afterwards.

Economic Momentum Remains A Core Tailwind

Roemer Capital said both Greece and Cyprus have moved beyond post-crisis recovery and are now supported by private-sector-led growth. For Cyprus, the report highlighted recent tax reform and efforts to simplify the legal and regulatory framework, while also noting that limited foreign banking competition continues to support domestic lenders.

Overall, Roemer Capital expects Greek and Cypriot banks to remain well-positioned for profitable loan growth over the coming years.

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