Trump's War on the Fed Could Trigger a Global Debt Crisis, Warns Dalio

Ray Dalio has warned that the U.S. economy is on the brink of a “debt-induced heart attack,” potentially occurring within three years under the Trump administration’s current fiscal policies. His comments, made during an interview with the Financial Times, underscore concerns about the sustainability of the U.S. debt model. Dalio cited excessive borrowing and rising interest costs as key factors that could trigger a financial crisis if investor confidence wanes. He criticized the assumption that the U.S. can indefinitely increase its debt without consequence, arguing that such a view reflects a lack of understanding of economic mechanics.

The U.S. national debt has surged to $37.3 trillion, with the government spending over $1 trillion annually on interest payments alone—a figure that now accounts for 17% of the federal budget. The Trump administration’s One Big Beautiful Bill Act (OBBBA), which promises significant tax cuts for working- and middle-class Americans, has raised eyebrows due to its potential to exacerbate fiscal imbalances. According to the Congressional Budget Office, the OBBBA could add $3.4 trillion to the national debt, though this is partially offset by expected revenue from tariffs. However, data from Fortune suggests that even with these tariffs, the U.S. remains far from covering its monthly debt servicing costs, which hit $60.95 billion in July alone.

Compounding concerns about fiscal sustainability is the growing political pressure on the Federal Reserve. President Trump has repeatedly criticized Fed Chair Jerome Powell for maintaining high interest rates and has attempted to remove Fed Governor Lisa Cook over alleged mortgage fraud. European Central Bank President Christine Lagarde has warned that such interference could undermine the Fed’s independence and disrupt the global economic order. She emphasized that the Fed’s independence is crucial for maintaining economic stability, not just in the U.S. but globally. Lagarde noted that U.S. monetary policy affects the world’s largest economy and, by extension, global markets, making any politicization of the Fed a “very serious danger.”

Financial leaders and analysts have echoed these concerns. Ray Dalio warned that a politically influenced Fed would weaken confidence in the dollar and reduce the appeal of dollar-denominated assets, potentially destabilizing the global monetary system. JPMorgan Chase CEO Jamie Dimon also stressed the importance of the Fed’s independence, warning that political meddling could lead to damaging economic consequences. Despite these warnings, Trump continues to push for aggressive rate cuts, which he believes would lower borrowing costs and boost economic growth. However, the Fed has maintained rates at 4.25% to 4.5%, reflecting ongoing caution over inflation and the potential inflationary effects of Trump’s tariff policies.

The broader financial markets have responded to this uncertainty by increasing borrowing costs. Government bond yields in the U.S., UK, and France have risen amid concerns about fiscal policy, economic uncertainty, and political instability. These trends highlight the growing risks of debt accumulation and the potential spillover effects from U.S. fiscal and monetary policy. As the Trump administration’s economic agenda unfolds, the challenge will be to balance short-term political goals with long-term economic stability—something that, according to Dalio and others, is currently out of reach.

Source: [1] Ray Dalio says America's 'debt-induced heart attack' will ... (https://finance.yahoo.com/news/ray-dalio-says-america-debt-105351577.html) [2] US Fed loss of independence a serious danger, says ... (https://www.bbc.com/news/articles/c5y3110edzgo) [3] Trump's war on Fed is 'serious danger' to world economy ... (https://www.theguardian.com/us-news/2025/sep/01/trump-us-fed-ecb-christine-lagarde) [4] Europe's Top Central Banker Lagarde Warns About ... (https://www.businessinsider.com/trump-fed-interference-global-economic-risk-warning-ecb-lagarde-2025-9)