Mr. Trump’s failed attempt to lower interest rates

President Donald Trump frequently criticizes high interest rates, saying they insult the size and strength of the economy. According to him, the US deserves to have the cheapest borrowing costs in the world.

Therefore, he has long publicly put pressure on the Federal Reserve (Fed) to cut base interest rates, arguing that it would be “rocket fuel” for growth and help house prices become more accessible.

But so far, the president “is losing his own battle to cut interest rates”, according to comments by AP. Because it is difficult for the Fed to lower the base interest rate when inflation remains high, while US Treasury bond yields – a reference to mortgage interest rates at banks – inched up due to investors’ unstable assessments.

Last year, tariffs caused inflation to escalate. Notably, since the end of February, the war with Iran caused oil prices to skyrocket, at times approximately 120 USD per barrel. By last month, US inflation increased by 3.5% over the same period in 2025, which has remained above the 2% target for more than 5 years.

Gasoline prices have increased again in the past few weeks as tensions in the Middle East have escalated again. On July 29, the Fed decided to keep the reference interest rate unchanged at 3.5-3.75%. Fed Chairman Kevin Warsh did not provide clear direction for handling the inflation problem.

Instead, the new Fed chairman, chosen by Mr. Trump himself, once said he felt satisfied letting financial markets play a larger role in deciding interest rates instead of the central bank.

In fact, although the Fed kept its operating interest rates unchanged at the beginning of the year until now, the market still raised the yield on US Treasury bonds, the basis for interest rates at banks to increase. According to Mr. Warsh, this is “a change in a positive direction”, although contrary to Trump’s expectations for the new Fed Chairman.

“Investors are learning to look at the game itself, not the referee. Prices in the market will continue to fluctuate in the direction and level they deem appropriate,” Mr. Warsh said last week.

By July 31, the 30-year US Treasury bond yield reached its highest level in nearly two decades, contrary to the commitment Mr. Trump once made to voters. The 10-year bond yield also exceeded 4.7%, higher than when he returned to the White House.

The 10-year Treasury bond yield is the reference for financial institutions to set mortgage interest rates. As of last week, the average 30-year fixed mortgage interest rate was at 6.66%, almost unchanged from a year ago.

High anchor interest rates mean fewer families can afford to borrow to buy a house or car. The government itself is also under pressure, having spent $827 billion this fiscal year to repay the federal public debt, more than the amount spent on defense. Mr. John Silvia, CEO Dynamic Economic Strategy, commented that this is the result of ongoing events. “Markets are reflecting higher inflation and policy uncertainty,” he said.

Meanwhile, at the cabinet meeting on July 31, Mr. Trump almost ignored the rise in interest rates and described the economy as booming, although the latest data showed that second quarter GDP increased only 1.5%, adjusted to a yearly basis. “We are having the most successful economic environment ever. More investment capital is pouring into America than ever before,” he said at a cabinet meeting on July 31.

Neither President Trump nor Treasury Secretary Scott Bessent mentioned interest rates in the public session. But White House spokesman Kush Desai said that ending hostilities with Iran would help inflation fall sharply, paving the way for the Fed to continue cutting base interest rates.

During the 2024 election campaign, Mr. Trump and the Republicans promised interest rates and prices would fall if their policies were implemented. However, over the past 12 months, inflation increased nearly at the rate of hourly wage increases. The reality may be more worrying, because debt repayment costs are not included in the consumer price index (CPI).

“This has caused the Democrats to lose in the 2024 election. If prices and borrowing costs continue to rise faster than wages through this fall, the same logic will be disadvantageous for the Republican Party,” said economist Juan Felipe Riaño at Georgetown University.

Experts warn that high interest rates are becoming a challenge for Republicans in the midterm elections in November. Mr. Trump can point to low unemployment and solid consumption to demonstrate a stable economy. But so far, there are few signs that these arguments are convincing the public.

One reason may be that voters care more about whether incomes are growing faster than inflation, according to research published in June by economists Juan Felipe Riaño and Francesco Trebbi at the University of California, Berkeley.

Time is running out for Mr. Trump’s efforts to reduce interest rates. The Fed’s next policy meeting will take place September 15-16. According to the CME FedWatch tool, the market currently expects the Fed to raise interest rates this time.