The Congressional Budget Office (CBO) on Wednesday estimated that deficits over the next 10 years will total $3.5 trillion, about half of what was projected at the beginning of the year. The budget office also estimates this year’s deficit will run $1.284 trillion, $116 billion less than what was forecast in March.

The better forecast is due to two factors, CBO said. It reflects cuts mandated by the debt ceiling deal signed into law earlier this year, and interest rate payments on the debt that are expected to be lower.

The debt deal requires $2.1 trillion in deficit cuts, some of which Congress must still agree to make after a report from a “supercommittee” of lawmakers later this year. CBO trimmed another $1.2 trillion because it expects lower interest rates on U.S. debt will be kept in place due to weakened economic growth.

Although the numbers are an improvement, CBO said budgetary challenges remain “profound.”

The nation is on track to record its third straight year with deficits over $1 trillion. This year is set to come in as the third-worst budget deficit ever, after 2010 and 2009. Even with the debt ceiling deal in place, the national debt is forecast to grow to $14.5 trillion by 2021, CBO said.

CBO also has substantially weakened its outlook for the economy compared to its January report. It now expects 2.3 percent growth in 2011 and 2.7 percent growth in 2012. That compares to a January forecast of 3.1 percent growth for the year.