The Debt Time Bomb: Why Trump Wants the Fed to Cut Rates...NOW!
The U.S. government is feeling the pinch, not from new spending, but from past borrowing. As interest rates remain elevated and trillions in cheap debt mature, the cost of refinancing is inexorably pushing the nation toward a fiscal and political reckoning. At the centre of this storm: President Trump and the Federal Reserve.
A Renewed Power Struggle in Washington
President Donald Trump has returned to the White House, and so has the tension with the Federal Reserve. Having made no secret of his dissatisfaction with Fed Chair Jerome Powell during his first term, Trump is once again turning up the pressure. The issue this time is not just about economic growth or inflation targets. It is about a far deeper problem: the U.S. can no longer afford high interest rates.
Trump’s administration, facing rising deficits and ballooning interest costs, is now clashing with a Federal Reserve that remains intent on holding rates higher for longer. The central bank, wary of reigniting inflation, refuses to ease prematurely. But behind the headlines, a more fundamental dynamic is unfolding, one that could define this presidency, constrain fiscal choices, and test the very independence of America’s central bank.
Debt Repricing: The Silent Force Reshaping U.S. Finances
Most people understand that higher interest rates make it more expensive to borrow. What fewer appreciate is that rising rates also make existing debt more expensive over time. This does not happen because past loans are retroactively changed, but because debt is not static. It matures. It rolls over. And when it does, it is reissued at today’s rates, not yesterday’s.
The United States has over 34 trillion dollars in federal debt. With an average maturity of around 5.9 years, trillions of dollars’ worth of low-interest debt issued during the 2010s and pandemic years must now be refinanced at dramatically higher rates. That is debt that once cost the government 1 to 2 percent annually now being replaced with bonds yielding 4 to 5 percent or more.
The result is a massive surge in interest payments, even without major new borrowing. In 2020, the U.S. spent about 345 billion dollars on interest. By 2024, that number surpassed 1 trillion dollars, making debt service one of the largest and fastest-growing budget categories. It is now on track to eclipse defense spending.
Trump’s Dilemma: Spending Meets the Interest Bill
This creates a unique problem for President Trump, who has returned to office with familiar policy instincts: lower taxes, increased defence spending, and an aggressive push for infrastructure and energy dominance. But the fiscal backdrop has changed dramatically.
Every new budget proposal must now contend with a towering interest bill. Unlike discretionary spending, these costs cannot be easily trimmed. They are locked in and growing. This dynamic has transformed the fight over interest rates from an abstract monetary debate into a direct challenge to the administration’s ability to govern effectively.
And it is no secret where Trump stands. He has repeatedly accused the Fed of being too slow to cut rates and too fixated on outdated inflation fears. But Powell, still chair at least for now, has signaled that premature easing could damage the Fed’s credibility and re-accelerate price pressures.
Fiscal Dominance: When Debt Dictates Monetary Policy
This impasse exposes a deeper structural vulnerability: fiscal dominance. In economic terms, fiscal dominance occurs when a government’s debt burden becomes so large that monetary policy must accommodate it, either by keeping rates low or by expanding the central bank’s balance sheet to cap interest costs.
The United States is inching dangerously close to that line. Even if inflation stabilizes, the sheer scale of debt refinancing means the Treasury must auction more debt at higher yields. The Fed, meanwhile, must decide whether to hold the line on its inflation mandate or yield to mounting political and fiscal pressure.
And pressure is indeed building. Trump has floated the idea of replacing Powell if he does not cut rates. Some of his advisors have proposed reforming the Fed to make it more accountable to elected officials. If any of that occurs, the perception of central bank independence could erode, with global consequences.
The Global Stakes
This is not just a domestic tug-of-war. The world’s financial system is built on the assumption that U.S. Treasuries are both safe and apolitical, that they reflect macroeconomic fundamentals rather than presidential preferences. If investors begin to suspect that U.S. interest rates are being manipulated for political expediency, they may demand higher risk premiums, shift assets elsewhere, or become more reluctant buyers at future debt auctions.
That could deepen the very debt spiral the government is trying to avoid.
Already, foreign central banks and sovereign investors are watching closely. In 2023, major buyers like Japan and China had already begun to reduce their holdings of U.S. debt. A politicized Fed, or a perception of unsustainable borrowing, could accelerate that trend. That in turn would raise borrowing costs further and trigger financial volatility.
A Reckoning on the Horizon
The battle between fiscal reality and monetary independence is reaching its breaking point.
What makes all of this so dangerous is how quietly it unfolds. There is no market crash or sudden collapse. Just a steady upward drift in interest costs, month after month, as more old debt rolls off and is replaced by new debt priced to today’s realities.
It is a slow-motion tightening, one that squeezes not just financial markets, but the federal budget itself. Unlike wars or pandemics, it does not dominate headlines. But its consequences are just as profound.
President Trump’s renewed battle with the Fed may appear political, but it reflects a deeper truth: America’s debt machine is colliding with a new monetary reality. And as old debt gets repriced at higher rates, the cost of governance itself is rising.
In a world of trillion-dollar interest bills and political interference with monetary policy, the line between solvency and instability grows thinner. The slow burn of rising rates has become a systemic threat, not just to America’s balance sheet, but to its institutions and global standing.
The real question now is not whether the debt can be managed, but whether the political system can survive the pressure it creates.
#DebtCrisis #InterestRates #FiscalPolicy #MonetaryPolicy #EconomicInsights #RangaChandPerspective
Ranga Chand is an international economist and author known for his global perspective and decades of experience analyzing major economic shifts. His latest book, The Fall of the Dollar Empire, examines how protectionism and de-dollarization are transforming the global financial system. Now available on Amazon.