Trump Pushes for Rate Cuts as Global Savings Shift Drives Higher Borrowing Costs

Donald Trump has made the reduction of interest rates a key economic priority, aiming to boost growth and restore confidence in the U.S. housing and business markets. His frustration with current Federal Reserve Chair Jerome Powell is well known, and he has publicly criticized Powell as “TOO ANGRY, TOO STUPID, & TOO POLITICAL.” With Fed Governor Adriana Kugler’s early departure, Trump sees an opportunity to place a loyalist in her position, hoping to shift the central bank's stance toward his economic agenda [1].

However, the challenge Trump faces extends beyond the Fed. The U.S. economy is grappling with a broader structural issue: the shrinking global savings pool. For decades, low interest rates were supported by a surplus of global savings, driven by Baby Boomer retirement savings, China’s trade surpluses, and oil exports from petrostates. These funds were funneled into U.S. Treasuries, suppressing borrowing costs. But that environment is now reversing [1].

Demographic shifts, including the retirement of the Baby Boomer generation, and reduced demand from China, whose foreign exchange reserves have declined from $4 trillion to $3.3 trillion since 2014, are contributing to rising long-term interest rates. Additionally, countries such as Saudi Arabia are redirecting capital away from U.S. government bonds toward domestic megaprojects like Neom [1].

The U.S. has also contributed to this shift. In 2022, the seizure of Russian assets raised global concerns over the safety of dollar assets, undermining confidence in U.S. debt as a risk-free investment. Meanwhile, the U.S. federal debt has nearly tripled since 2001, reaching close to 100% of GDP. Defense spending is rising globally, with European NATO members committing to increase defense budgets to 3.5% of GDP, further pressuring global capital markets [1].

Bloomberg Economics estimates that the “natural rate” of interest has already risen to 2.5% and could hit 2.8% by 2030. This would push ten-year Treasury rates into the 4.5% to 5% range, or even higher in a worst-case scenario. Given these structural trends, Trump’s push for lower rates through personnel changes at the Fed is unlikely to succeed [1].

Current mortgage rates sit at 7%, constraining real estate activity and consumer spending. While the Fed may cut short-term rates in response to a cooling labor market, long-term rates are increasingly driven by global capital flows and fiscal policy. These are not easily manipulated by any single administration [1].

The shift in global savings behavior, rising public debt, and the growing demand for capital in AI and infrastructure investment mean that low interest rates are no longer guaranteed. Trump’s desire to control rates reflects a misunderstanding of the forces now shaping the global financial landscape [1].

Sources:

[1] https://coinmarketcap.com/community/articles/688fe408c2ab4f6a22e6a7d4/