WASHINGTON (AP) 鈥� President 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 U.S. economy, saying that America deserves the cheapest borrowing costs in the world. Trump for months publicly pressured the to slash its benchmark rates, claiming it would be 鈥淩ocket Fuel!鈥� for growth and make housing more affordable.
But since the war in Iran began at the end of February, , meaning fewer families can afford mortgages or auto loans. The government is getting squeezed, too 鈥� 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 , the Fed’s new chair picked by Trump, said in his second press conference on the job that but offered no clear guidance on how to fix the problem.
Interest rates are rising, even though Trump pledged they would fall
Rates on 30-year U.S. Treasury bonds hit their highest levels in nearly two decades, the exact opposite of what Trump had pledged to voters. The 10-year U.S. 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
鈥淲e have the most successful environment that we鈥檝e ever had,鈥� Trump told his . 鈥淭here鈥檚 never been anything like it from the standpoint of investment into our country.鈥�
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. 鈥淥il prices 鈥� and thus overall inflation 鈥� 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,鈥� Desai said.
Higher interest rates are weighing on voters ahead of the midterm elections
The prospect of higher borrowing costs has become troublesome for Republicans in the November elections, as Trump鈥檚 own policies helped drive the increase.
His tariffs that began last year caused rates to jump so quickly that he . Trump has championed the 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 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 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 Ria帽o 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 鈥� and that understates the extent of the problem because debt service costs are not included in the consumer price index.
鈥淚t cut against Democrats in 2024, and if prices and borrowing costs keep outrunning wages into the fall, the same logic points at Republicans now,鈥� Ria帽o, the Georgetown University economist, told the AP.
Housing affordability has been a sore point for voters
Earlier this year, the Trump administration directed Freddie Mac and Fannie Mae, the two mortgage firms under government conservatorship, to to bring down mortgage rates.
Earlier this year, Republicans had hoped to campaign on falling rates and a bipartisan bill to increase home construction to help defend their House and Senate majorities. One GOP lawmaker, who spoke on condition of anonymity to discuss strategy, said the hope was that Trump would sign the bill as mortgage rates fell below 6%, which could improve housing affordability and public sentiment toward the overall economy.
However, Trump called the bill a 鈥渂ig yawn鈥� and . And the mortgage company Freddie Mac said Thursday that , essentially unchanged from a year ago.
Markets don’t expect interest rates to drop before the election
Warsh, the Fed chair since May, has said he has been content to let the financial markets do more to set the rates, rather than the central bank. Even though the Fed has held its benchmark rate steady this year, the markets on their own have chosen to charge a premium for holding U.S. government debt.
鈥淢arkets reflect the higher inflation, policy uncertainty,鈥� said John Silvia, the CEO of Dynamic Economic Strategy. 鈥淭hey are the product of events.鈥�
Warsh on Wednesday portrayed that as a positive, even if the result goes against what Trump expected from his new Fed chair.
鈥淢arket participants are learning to play the ball, not the referee 鈥� and market prices will continue to respond in the direction and magnitude they see fit,鈥� Warsh said. 鈥淭his is, in my view, a change for the better 鈥� and we are just getting started.鈥�
But time might not be on Trump’s side for fixing high interest rates. The next Fed meeting on rates will conclude on Sept. 16. Markets currently expect Fed officials to vote to raise rates in order to reduce inflationary pressures, according to CME FedWatch.
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