Why the "King Of Debt" Urges Powell To Lower Official Rates

President Trump, who frequently calls himself the "King of Debt," has persistently urged Fed Chair Jerome Powell to reduce official rates. This ongoing pressure is primarily due to the growing expense of interest payments that the US must cover, which will increase further following the approval of the "Big Beautiful Bill (BBB)."

The Congressional Budget Office anticipates that following the enactment of "BBB," the cumulative deficits over the next ten years will amount to around $25 trillion. Critics of the CBO's budget projections contend that these estimates are based on growth predictions that are "too low." Yet, what is overlooked or ignored by the critics is that CBO budget projections are based on short-term market interest rates 100 basis points below current market rates and 50 basis points lower for long-term interest rates.

What is the size of that budget cost? It's enormous. According to the CBO, "if all interest rates were 0.1 percentage point higher" than those in the baseline projection, the interest costs from 2026 to 2035 would rise by $351 billion. OUCH!!! With the current rates, it's simple for anyone to estimate the potential increase in interest costs, making it clear why the "King of Debt" is concerned.

The Wall Street Journal reported today that Kevin Hassett, the White House Director of the National Economic Council, is among the candidates President Trump is considering to succeed Fed Powell. In 2009, Mr. Hassett co-authored an article titled "The Deficit Endgame" for the American Enterprise Institute. The authors noted that one way to reduce "government indebtedness" is through "a policy of high inflation."

However, the authors noted that "unless the government engineers a sudden and unanticipated inflationary burst, one would expect that markets would shorten the duration of their debt holdings and demand higher interest payments on longer-dated debt to compensate them for the risk of inflation. This would imply that inflation would have to rise to very high levels for an extended period-of-time to make any dent on the government‘s debt-to-GDP ratio. It is highly questionable whether such a policy is possible in the U.S.

Why? The authors state that "The Federal Reserve has the legal responsibility to ensure price stability." If Trump selects Hassett to succeed Powell, will he attempt to alter the Federal Reserve's legal mandate?