Trump wanted interest rate cuts to be 'Rocket Fuel' for the economy. He
is losing that fight so far
[August 01, 2026] By
JOSH BOAK
WASHINGTON (AP) — President Donald Trump has been losing his own battle
to cut interest rates.
The president likes to vilify high rates as an affront to the size and
strength of the U.S. economy, saying that America deserves the cheapest
borrowing costs in the world. Trump for months publicly pressured the
Federal Reserve to slash its benchmark rates, claiming it would be
“Rocket Fuel!” for growth and make housing more affordable.
But since the war in Iran began at the end of February, borrowing money
has become more expensive, meaning fewer families can afford mortgages
or auto loans. The government is getting squeezed, too — as it has spent
$827 billion so far this fiscal year to service the national debt, more
than it has devoted to national defense.
The scope of the problem became clear this past week when Kevin Warsh,
the Fed's new chair picked by Trump, said in his second press conference
on the job that inflation continues to run hot but offered no clear
guidance on how to fix the problem.
Interest rates are rising, even though Trump pledged they would fall
Rates on 30-year U.S. Treasury bonds hit their highest levels in nearly
two decades, the exact opposite of what Trump had pledged to voters. The
10-year U.S. Treasury note saw its interest rate shoot up above 4.7% on
Friday, surpassing what the president inherited when he returned to the
White House last year.
But Trump has largely ignored the jump in interest rates and has
portrayed the economy as booming, even though the government recently
reported that the annual growth rate for the prior three months was a
sluggish 1.5%.
“We have the most successful environment that we’ve ever had,” Trump
told his Cabinet on Friday. “There’s never been anything like it from
the standpoint of investment into our country.”
Neither Trump nor his Treasury Secretary, Scott Bessent, discussed
interest rates during the public portion of the meeting. But White House
spokesman Kush Desai said the end of the Iran war would ultimately
reduce energy costs and allow the Fed to reduce rates. “Oil prices — and
thus overall inflation — will plummet again when President Trump forces
a successful resolution with Iran, further paving the way for additional
interest rate cuts by the Federal Reserve,” Desai said.
Higher interest rates are weighing on voters ahead of the midterm
elections
The prospect of higher borrowing costs has become troublesome for
Republicans in the November elections, as Trump’s own policies helped
drive the increase.
His tariffs that began last year caused rates to jump so quickly that he
backed off and reformulated them. Trump has championed the construction
of data centers for artificial intelligence, but the bonds financing
those projects appear to have helped push up interest rates. And the war
in Iran has fueled rising oil prices.
Republicans had hoped to show clear progress on affordability to voters
ahead of the midterms. Trump can point to a low unemployment rate and
solid consumer spending as proof that the economy remains stable, yet
there are few signs that these arguments have connected with the public.
One possible reason why Trump's economic messaging has struggled is that
voters care more about whether their incomes are outpacing inflation,
according to research released in June by Georgetown University's Juan
Felipe Riaño and the University of California, Berkeley's Francesco
Trebbi.
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President Donald Trump listens during a cabinet meeting, Friday,
July 31, 2026, at Camp David, the presidential retreat, near
Thurmont, Md., Friday, July 31, 2026. (AP Photo/Jacquelyn Martin)
 Trump and Republicans not only
promised lower interest rates in the 2024 elections, but they
indicated that prices could fall outright if their policies were in
place. But over the last 12 months, inflation has nearly kept pace
with hourly wage gains — and that understates the extent of the
problem because debt service costs are not included in the consumer
price index.
“It cut against Democrats in 2024, and if prices and borrowing costs
keep outrunning wages into the fall, the same logic points at
Republicans now,” Riaño, the Georgetown University economist, told
the AP.
Housing affordability has been a sore point for voters
Earlier this year, the Trump administration directed Freddie Mac and
Fannie Mae, the two mortgage firms under government conservatorship,
to buy at least $200 billion in home loans to bring down mortgage
rates.
Earlier this year, Republicans had hoped to campaign on falling
rates and a bipartisan bill to increase home construction to help
defend their House and Senate majorities. One GOP lawmaker, who
spoke on condition of anonymity to discuss strategy, said the hope
was that Trump would sign the bill as mortgage rates fell below 6%,
which could improve housing affordability and public sentiment
toward the overall economy.
However, Trump called the bill a “big yawn” and allowed it to become
law without his signature. And the mortgage company Freddie Mac said
Thursday that 30-year rates were averaging 6.66%, essentially
unchanged from a year ago.
Markets don't expect interest rates to drop before the election
Warsh, the Fed chair since May, has said he has been content to let
the financial markets do more to set the rates, rather than the
central bank. Even though the Fed has held its benchmark rate steady
this year, the markets on their own have chosen to charge a premium
for holding U.S. government debt.
“Markets reflect the higher inflation, policy uncertainty,” said
John Silvia, the CEO of Dynamic Economic Strategy. “They are the
product of events.”
Warsh on Wednesday portrayed that as a positive, even if the result
goes against what Trump expected from his new Fed chair.
“Market participants are learning to play the ball, not the referee
— and market prices will continue to respond in the direction and
magnitude they see fit,” Warsh said. “This is, in my view, a change
for the better — and we are just getting started.”
But time might not be on Trump's side for fixing high interest
rates. The next Fed meeting on rates will conclude on Sept. 16.
Markets currently expect Fed officials to vote to raise rates in
order to reduce inflationary pressures, according to CME FedWatch.
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