Donald Trump’s Interest Rate Ambitions Clash with Harsh Economic Realities
Donald Trump has made no secret of his desire to see interest rates fall sharply—ideally under his watch should he return to the White House. For the former president, interest rates are not merely economic levers but powerful political tools. He believes that by replacing Jerome Powell, the current Chair of the Federal Reserve, he can force rates lower and “fix everything.”
But the truth is far more complex.
Even if Trump manages to install a loyalist at the Fed, he’ll be fighting against macroeconomic forces that no central bank—or president—can control. According to Bloomberg Economics, the 10-year U.S. Treasury yield is likely to remain above 4.5%, not below, regardless of who heads the central bank. That’s because the real challenge is not Powell, but the vanishing pool of global savings, soaring government debt, and tectonic demographic shifts.
The End of an Era: Cheap Money is Over
For more than three decades, borrowing costs steadily declined. It was a golden era of cheap money, during which Washington could spend liberally, real estate prices soared, and the stock market rode an upward wave fueled by low interest rates. But that chapter is now closed.
Today, the U.S. faces a future where interest payments on national debt could exceed the entire budget of the Department of Defense. Mortgage rates are hovering around 7%, and the housing market is feeling the strain. Yet Trump seems convinced that merely replacing Powell can reverse the tide. That’s a dangerous illusion.
Trump’s Strategy: Replace Powell, Control the Fed
Trump has harshly criticized Powell, calling him “TOO MAD, TOO STUPID & TOO POLITICAL.” With Fed Governor Adriana Kugler leaving early, Trump sees a rare opening to stack the Fed with allies. His plan is clear: install someone loyal to slash interest rates regardless of market dynamics.
However, short-term rate cuts won’t matter much if long-term yields continue to rise. And unfortunately for Trump, that’s exactly where the trend is headed.
The Vanishing Global Savings Pool
The real reason long-term interest rates are climbing is because the world is saving less.
The Baby Boomer generation, once the backbone of global savings, is now retiring and spending down its wealth. China, once a major buyer of U.S. Treasuries, has seen its foreign reserves drop from $4 trillion in 2014 to $3.3 trillion today. It is no longer buying U.S. debt at previous levels.
Saudi Arabia, once another reliable source of capital, is now shifting funds from bonds into futuristic mega-projects like Neom, a planned high-tech city in the desert. Even oil-rich countries are no longer eager to park their cash in U.S. assets.
In fact, the U.S. itself has made matters worse. In 2022, when it froze $300 billion of Russian assets, the move sent a clear message: U.S. Treasuries are no longer risk-free. Other countries got the message. If the U.S. could seize Russia’s money, it could do the same to them.
Breaking a Sacred Norm: Political Interference at the Fed
For decades, U.S. Presidents—from Ronald Reagan to Barack Obama—respected the independence of the Federal Reserve. That independence was a cornerstone of investor trust. If the world believes that America’s central bank is being politically manipulated, they will demand higher yields to compensate for the risk.
Why Interest Rates Stayed Low for So Long—and Why They Won’t Anymore
From the 1980s through the 2010s, interest rates declined globally due to excess savings and weak demand. Baby Boomers saved for retirement. China and oil exporters accumulated surpluses and recycled them into U.S. debt. Technologies reduced costs, and economic growth slowed.
This pushed down the so-called “natural interest rate”—the rate that keeps the economy balanced— from around 5% in 1980 to just 1.7% by 2012. But now, all of those forces are reversing.
Boomers are spending, not saving. China is liberalizing its currency and no longer hoards U.S. dollars. Saudi Arabia is investing in its future, not in American bonds. The core forces that suppressed interest rates are disappearing.
Government Debt Is Spiraling Out of Control
The U.S. national debt has ballooned to nearly 100% of GDP, up from just over 30% in 2001. Defense spending is rising again, especially since Russia’s invasion of Ukraine. European NATO members are ramping up defense budgets to 3.5% of GDP, which will add an estimated $2.3 trillion to European debt in the next decade. Because global investors often treat French and German bonds as U.S. Treasury substitutes, that pressure spills over into American yields too.
The AI Revolution Isn’t Free
Artificial intelligence promises productivity gains—but it also comes with an enormous upfront cost. Building data centers, upgrading power grids, and reshaping supply chains require vast amounts of capital. Governments and businesses are now competing for funding, and unlike before, there isn’t a surplus of savings to go around.
According to Bloomberg Economics, the natural interest rate is now around 2.5%, and could rise to 2.8% by 2030. This would keep the 10-year Treasury yield between 4.5% and 5% under optimistic conditions. If things worsen—higher deficits, slower global growth, rising geopolitical tensions—yields could soar past 6%.
Conclusion: This Is Bigger Than Trump
Donald Trump wants to control interest rates. But even if he could push short-term rates down through political appointments, he cannot alter the global savings imbalance, reverse demographic trends, or make investors ignore fiscal risk.
The era of easy money is over. The forces lifting interest rates today are structural, global, and long-lasting. No change at the Fed—no matter how dramatic—will bring back the world of 2% mortgages and free-spending Washington.
Trump may want lower interest rates—but the world no longer has the savings to support them.
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