Trump Wants Lower Interest Rates. The Market Disagrees.
President Donald Trump is reportedly considering firing Federal Reserve Chairman Jerome Powell for refusing to cut interest rates—a move Trump believes is necessary to boost construction, consumption, and job creation. But with lingering pandemic-era inflation and uncertainty over tariffs, Powell and the Fed fear that more cuts would only fuel inflation.
Even if Powell—or a Trump-appointed successor—wanted to lower rates, the market might not allow it. The U.S. borrows too much, and the bond market is getting picky.
Interest rates remain elevated by recent historical standards. The Federal Funds Rate, the short-term rate set by the Fed, is currently 4.25 percent to 4.50 percent, while the 10-year Treasury yield hovers around 4.31 percent.
Higher interest rates affect everything. First, they make servicing the debt more expensive. According to the Congressional Budget Office (CBO), interest on the federal debt is one of the fastest-growing budget items—equivalent to 3.1 percent of gross domestic product in 2024 (more than Medicaid) and projected to rise to 5.4 percent of GDP by 2055, when its cost will be second only to Social Security. The more the government spends on interest, the less it has for everything else—and the more pressure there is to raise taxes.
Second, Treasury yields set the floor for all other interest rates, such as mortgages, car loans, and business loans. If the federal government pays 4 percent to borrow money for one year, no one will lend to a private borrower for less. It’s not personal—the
Article from Reason.com
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