President Donald Trump has been losing his own battle to cut interest rates.
The president likes to vilify high rates as an affront to the size and strength of the US economy, saying that America deserves the cheapest borrowing costs in the world. Trump for months publicly pressured the Federal Reserve to slash its benchmark rates, claiming it would be “Rocket Fuel!” for growth and make housing more affordable.
But since the war in Iran began at the end of February, borrowing money has become more expensive, meaning fewer families can afford mortgages or auto loans. The government is getting squeezed, too — as it has spent $827 billion so far this fiscal year to service the national debt, more than it has devoted to national defense.
The scope of the problem became clear this past week when Kevin Warsh, the Fed’s new chair picked by Trump, said in his second press conference on the job that inflation continues to run hot but offered no clear guidance on how to fix the problem.
Rates on 30-year US Treasury bonds hit their highest levels in nearly two decades, the exact opposite of what Trump had pledged to voters. The 10-year US Treasury note saw its interest rate shoot up above 4.7% on Friday, surpassing what the president inherited when he returned to the White House last year.
But Trump has largely ignored the jump in interest rates and has portrayed the economy as booming, even though the government recently reported that the annual growth rate for the prior three months was a sluggish 1.5%.
“We have the most successful environment that we’ve ever had,” Trump told his Cabinet on Friday. “There’s never been anything like it from the standpoint of investment into our country.”
Neither Trump nor his Treasury Secretary, Scott Bessent, discussed interest rates during the public portion of the meeting. But White House spokesman Kush Desai said the end of the Iran war would ultimately reduce energy costs and allow the Fed to reduce rates. “Oil prices — and thus overall inflation — will plummet again when President Trump forces a successful resolution with Iran, further paving the way for additional interest rate cuts by the Federal Reserve,” Desai said.
The prospect of higher borrowing costs has become troublesome for Republicans in the November elections, as Trump’s own policies helped drive the increase.
His tariffs that began last year caused rates to jump so quickly that he backed off and reformulated them. Trump has championed the construction of data centres for artificial intelligence, but the bonds financing those projects appear to have helped push up interest rates. And the war in Iran has fueled rising oil prices.
Republicans had hoped to show clear progress on affordability to voters ahead of the midterms. Trump can point to a low unemployment rate and solid consumer spending as proof that the economy remains stable, yet there are few signs that these arguments have connected with the public.
One possible reason why Trump’s economic messaging has struggled is that voters care more about whether their incomes are outpacing inflation, according to research released in June by Georgetown University’s Juan Felipe Riaño and the University of California, Berkeley’s Francesco Trebbi.
Trump and Republicans not only promised lower interest rates in the 2024 elections, but they indicated that prices could fall outright if their policies were in place. But over the last 12 months, inflation has nearly kept pace with hourly wage gains — and that understates the extent of the problem because debt service costs are not included in the consumer price index.
“It cut against Democrats in 2024, and if prices and borrowing costs keep outrunning wages into the fall, the same logic points at Republicans now,” Riaño, the Georgetown University economist, told the AP.
