“Cut the Benchmark Rate”: Trump Keeps Up Monetary-Policy Intervention, Stoking Fears of Greater U.S. Financial-Market Volatility Amid Debt and Deficit Pressures

“Inflation Remains Elevated”: Fed Raises Rates for First Time in Three Years
Trump Demands Immediate Rate Cut, Fueling Concerns Over Erosion of Market Confidence
U.S. Treasury Yields Soar as Trump’s Tax Cuts and Cash Handouts Heighten Market Anxiety

The Federal Reserve (Fed), the U.S. central bank, has raised its benchmark interest rate for the first time in more than three years. The move marks a decisive shift in monetary policy as surging global oil prices and tariff shocks intensify inflationary pressure. U.S. President Donald Trump, however, remains adamant that the Fed should cut rates despite its tightening stance, while continuing to embrace sweeping tax cuts and cash-transfer policies. Markets are warning that if this policy trajectory persists while the national debt and fiscal deficit continue to mount, the rise in U.S. Treasury yields could accelerate and deepen turmoil across financial markets.

Fed Embarks on Full-Fledged Tightening

According to CNBC and other major international news outlets on September 16 (all dates local), the Fed unanimously voted 12–0 at its regular Federal Open Market Committee (FOMC) meeting that day to raise the federal funds rate by 0.25 percentage points, from 3.50–3.75% to 3.75–4.00%. It marked the Fed’s first benchmark rate increase since July 2023. “Inflation remains elevated,” the FOMC said in a statement. “Today’s policy action will help expedite progress toward the Committee’s 2% inflation objective, and the Committee is firmly committed to restoring price stability.”

The Fed’s accompanying dot plot also clearly signaled the possibility of further tightening. The median projection for the benchmark rate at the end of this year rose to 4.1%, up 0.3 percentage points from the 3.8% forecast in June. Given that the midpoint of the current target range stands at 3.875%, the projections point to a growing likelihood of another 0.25-percentage-point increase before year-end. Of the 18 officials who submitted projections, 16 expected the rate to end the year above its current level. Twelve projected the equivalent of one additional increase, while four anticipated two more. Only two officials expected rates to remain unchanged. Fed Chair Kevin Warsh, who said after taking office that he would not provide advance guidance on a specific rate path, is presumed not to have submitted a dot-plot projection.

Trump Once Again Responds With Immediate Backlash

President Trump immediately pushed back against the Fed’s decision. “We are, by far, the country with the best credit in the world,” he wrote on his social-media platform Truth Social on September 16. “Interest rates in the United States should be 1%, or lower.” He continued, “If we stopped trading with every country with which we run a trade deficit—which means most countries—we would make at least $1.5 trillion a year,” arguing that “‘deficit’ is merely an elegant word for ‘loss’” and that the United States is “carrying” nearly every country in the world. His argument is that because the United States already supports other economies by absorbing enormous trade deficits, it should not also have to bear high interest rates. Trump concluded by demanding, “Lower interest rates in the United States, and do it quickly!”

This is not the first time President Trump has directly demanded that the Fed cut interest rates. He had consistently voiced dissatisfaction with the central bank’s rate increases since July 2018, during his first term. At the time, Trump said higher rates were “not something I’m thrilled about,” arguing that they would weaken U.S. economic growth and international competitiveness. In October that year, he escalated his criticism by describing the Fed’s tightening as “too aggressive.” By 2019, he had begun publicly calling for rate cuts. In April 2019, Trump urged the Fed to lower its benchmark rate and even resume quantitative easing (QE). In August, he demanded sweeping reductions on the grounds that the United States was paying higher interest rates than major economies such as Germany. This stance continued after his second administration took office last year. In May last year, Trump met then-Fed Chair Jerome Powell at the White House and called the refusal to lower rates a “mistake.” In July that year, he argued that the U.S. benchmark rate should stand at around 1%. Since then, he has repeatedly called for immediate cuts whenever the Fed has held rates unchanged.

Rising Cost of U.S. Debt

The problem is that such political intervention in interest-rate policy could instead undermine market confidence in the Fed’s independence. With U.S. government debt and fiscal deficits already having ballooned, mounting political pressure for artificially lower rates could simultaneously weaken the yield appeal of U.S. Treasuries and confidence in U.S. policymaking. According to FiscalData, the fiscal portal operated by the U.S. Treasury Department’s Bureau of the Fiscal Service, total federal debt stood at $40.1144 trillion as of September 15. Of that amount, debt held by the public—including investors in financial markets—totaled $32.4064 trillion, while intragovernmental holdings amounted to $7.7081 trillion.

The government’s interest burden is also growing rapidly. According to the Treasury Department’s recently released Monthly Treasury Statement (MTS) for the period through August of fiscal year 2026, the federal government paid $1.0169 trillion in net interest from October last year through August this year, an increase of $84 billion, or 9%, from the same period a year earlier. The amount was equivalent to approximately 15% of total federal spending and ranked as the second-largest expenditure category after Social Security. The Congressional Budget Office (CBO) projects that net interest costs for the full 2026 fiscal year will exceed $1 trillion and rise to 3.3% of gross domestic product (GDP).

Table 1. U.S. Government Finances and Treasury-Market Conditions

Long-Term Yields Climb Above 5%

As this enormous national debt has accumulated, U.S. Treasury investors have begun demanding greater compensation for holding longer-dated securities. According to the Treasury Department, the 30-year Treasury yield rose from 4.03% at the end of 2023 to 4.78% at the end of 2024, before surging to 4.97% in early September last year. The advance has become even steeper this year, with most long-term yields trading in the mid-5% range since the beginning of this month. As of September 16, the 30-year yield stood at 5.35%, the 20-year yield at 5.39% and the 10-year yield at 5.01%. This represents a medium- to long-term trend that cannot be explained solely by the Fed’s recent shift in monetary policy.

Fiscal instability has underpinned this upward momentum. If large fiscal deficits persist, the U.S. government must continue supplying enormous volumes of Treasuries both to refinance maturing securities and to fund new spending. The Treasury Department said last month that it planned to borrow a net $739 billion from private markets from July through September, followed by $628 billion from October through December. The greater the volume of securities that markets must absorb, the lower the bond prices—and therefore the higher the yields—that investors will demand. If uncertainty over future inflation and fiscal policy also intensifies, the risk premium required for accepting fixed interest payments over extended periods could rise further.

Trump’s “Perilous” Policy Course

Despite mounting turmoil in the bond market, the Trump administration continues to roll out policies carrying substantial fiscal costs. A prime example is the One Big Beautiful Bill Act (OBBBA). Enacted in July last year, the legislation made many of the individual income-tax cuts introduced during Trump’s first administration permanent while creating new deductions for tips and overtime pay as well as an additional deduction for seniors. It also substantially broadened tax relief for businesses by permanently allowing 100% immediate expensing for certain capital investments. In an analysis released in August last year, the CBO estimated that the OBBBA could increase the cumulative federal deficit by $3.4 trillion from 2025 through 2034. Including additional interest costs, the total increase could reach $4.1 trillion.

President Trump also declared at a Republican National Committee (RNC) midterm-election event on the night of September 9 that he would pay every adult a $5,000 dividend if Republicans retained control of Congress in the midterm elections. U.S. Vice President J.D. Vance subsequently told Fox News that the payments would be financed with tariff revenue collected by the Trump administration and targeted at the middle class. Economists warn that such a pledge could widen the federal deficit, reignite inflation and destabilize financial markets. “U.S. tariff revenue amounts to only about one-tenth of the $1.25 trillion required to pay every American adult $5,000,” said Erica York, vice president of federal tax policy at the Tax Foundation. “The government would ultimately have to issue Treasuries to cover the shortfall in tariff revenue, in which case the federal deficit—currently at $1.8 trillion—could rise to $3 trillion.” She added, “Financial markets are already concerned about America’s historically large fiscal deficit and the expectation that it will grow even further. Sending the message that ‘we do not really care, and we are going to nearly double the deficit’—that’s madness.”