There is a surprisingly literal interpretation to this poem. Yeats describes a sphinx-like beast arising in the desert. It is entirely possible that this is the "rough beast" to which he refers, and that the metaphorical nature of the creature is there simply to add depth to the poem.
Yeats had a bizarre but fully developed mystical belief system, which he outlined in a relatively obscure book called A Vision. A central tenet of this belief was that history repeats itself in cycles, which he called "gyres". The connection to the first part of the poem is obvious.
In the second part of the poem, Yeats mentions the Spiritus Mundi, which is another part of his belief system. The litertal translation is "spirit of the world", which Yeats held to be a collective soul or folk memory, a repository of all cultural history throughout the world. That, of course, makes Christian culture a tiny fragment of the whole.
Yeats saw the Spiritus Mundi in a vision, which he describes in terms that have a very literal parallel in the poem:
"... there rose before me mental images that I could not control: a desert and a black Titan raising himself up by his two hands from the middle of a heap of ancient ruins"
- Yeats, Autobiographies: Reveries Over Childhood and Youth and the Trembling Veil, 1926
So: the poem can be read literally. The "rough beast" is the resurrection of a thousand dead gods in a single image. It is terrifying only because it will wipe out our Christianised, homogenised culture and return us to a primal state.
That said, there is no doubt that Yeats was well aware of the symbolic values of his verse, because he talked about them himself. In a 1936 letter he wrote that the poem was:
"written some 16 or 17 years ago and foretold what is happening"
This is, of course, refers to the rise of Facism in Europe. However, it seems likely that, here, Yeats may be assigning himself an undue level of foresight. The poem was written in January 1919. While the world was indeed "falling apart" in the aftermath of the first world war and the influenza epidemic, making it easy to fear for the future, it seems unlikely anyone could have been so specific about those fears as to foree the Nazis.
- W. B. Yeats's "A Vision": Explications and Contexts, 2012.
- A Preface to Yeats, 1978