Trump says Powell is costing the US a fortune by not lowering rates. But firing the Fed chair may not fix the issue
'You have cost the USA a fortune and continue to do so,' Trump wrote in a handwritten note to Powell that he posted on Truth Social last month. 'You should lower that rate by a lot. Hundreds of billions of dollars are being lost.'
In the same post, Trump blamed the Fed board, saying, 'If they were doing their job properly, our Country would be saving Trillions of Dollars in Interest Cost … We should be paying 1% Interest, or better!'
Trump's focus on interest costs comes at a time of renewed attention on the nation's skyrocketing interest payments on its ever-growing federal debt.
Interest payments this fiscal year are nearing $1 trillion for the first time in the nation's history. The president just signed the 'big, beautiful bill,' which is expected to add more than $3 trillion to the deficit over the next decade and push interest rates even higher. And Moody's recently downgraded the US debt in part because of the increase in government debt and interest payment ratios.
But even if Trump succeeds in pressuring the Fed to reduce rates, it may not significantly lighten the nation's interest payment burden, experts said. The federal funds rate is only one of the factors that influences the interest rates on the federal debt, which is made up of a mix of short-term, medium-length and longer-duration Treasury securities.
'It seems to be an easier lever to pull for those who want to impact either interest costs on the federal debt or economic growth,' said Shai Akabas, vice president of economic policy at the Bipartisan Policy Center. 'But it doesn't mean that action by the Fed will result in the outcome the president or others may want.'
What's indisputable is that America's interest costs have soared in recent years, in part because of the nation's growing debt and in part because interest rates rose after a period of super-low rates as the nation combatted high inflation earlier in the decade.
The US shelled out $346 billion in interest payments in fiscal 2020. That figure has jumped to a projected $952 billion for the current fiscal year and is expected to exceed $1 trillion in the coming year, according to the Congressional Budget Office.
Interest payments are now the second-largest spending category in the federal budget, surpassing Medicare and defense in fiscal year 2024 and trailing only Social Security.
Currently, roughly 18 cents of every dollar in tax revenue goes to paying interest on the debt, Akabas said. By the end of the next decade, that figure will jump to about 25 cents.
While cutting the federal funds rate may lower rates on shorter-term securities, it may not reduce rates on 10-year or 30-year Treasury bonds. In fact, a sharp cut may increase longer-term rates for several reasons, including that a steep rate cut could spur inflation or could prompt investors to shift to longer-term securities to lock in higher rates, said Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget.
'The Federal Reserve only has so much power to lower those interest rates,' he said of the rates on longer duration Treasury bonds. 'There's no guarantee that the Fed cutting rates will reduce interest payments at all.'
If Trump were truly interested in reducing interest payments, there is a more efficient way to do that, experts said. He could work to lower the annual deficit — though that would likely involve some politically unpalatable changes to taxes and spending, they said.
While Trump's agenda package will make historic reductions to federal spending on the nation's safety net, its hefty tax cuts far surpass the savings and widen the annual deficit.
'If your concern is the hundreds of billions of dollars we're adding to the deficit from higher interest costs, the solution is to enact policies that are deficit reducing, not deficit increasing' Goldwein said.
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