Donald Trump makes a new turn in his call for the Federal Reserve to cut interest rates: he now claims it is key to reducing the cost of public debt.
Shortly after returning to the White House for his second term, the president began pressuring Fed Chairman Jerome Powell to help the economy in its transition to higher levels of tariffs. He now argues that rate cuts are necessary to address one of the main causes of the oversized federal budget deficit.
Treasury figures released last week show that the government disbursed about $776 billion in interest on federal debt in the last eight months. This represents a 7% increase compared to the same period of the previous fiscal year, when the burden of interest had already reached its highest level since the 1990s.
Economists warn that such a move could be counterproductive. Reducing the rate without economic justification could fuel inflationary fears. This would lead to lower demand for Treasury bonds, driving up yields and worsening the government's interest burden.
Trump indicated last week that his current concern is the wave of debt that is maturing and must be refinanced at a much higher cost than when it was issued. In 2020, debt issuances increased to finance pandemic rescue packages, and much of that debt is now maturing. An analysis by Nomura Holdings indicates that more than $7 trillion must be refinanced before the end of the year.
