President Trump wants rate cuts. Stock market investors do too. As do home buyers.
Their reasons are slightly different. But they all generally believe rate cuts to be the path to greater riches and glory.
Trump wants cheaper credit for several reasons. First, he wants cheaper credit so the Treasury can better finance the U.S. government’s massive $37.5 trillion pile of debt.
The 2025 fiscal year ends September 30. Through August, the federal government has run a budget deficit of $1.97 trillion. About half of this – $933 billion – was merely to cover the interest on the debt.
If interest rates were to drop by a percentage point or two the annual debt interest could fall by several hundred billion. This may buy a little time for the U.S. government’s fiscal reckoning. But it really wouldn’t change anything.
The U.S. government is on target to run a budget deficit of $2.2 trillion for FY 2025. Lower interest rates, and thus a lower net interest payment, would only reduce the deficit to around $2 trillion – a difference of just over a half percent of the total $37.5 trillion of outstanding debt. In other words, it would do exactly diddly-squat for the nation’s finances. Continue reading