However, one thing does not go in line with the plan: interest rates. And he is already going under Trump's skin.
“Interest rates should be reduced,” Trump Posted on social media on February 12. “Something should go hand in hand with tariffs.”
Markets do not see it that way – and unlike the number of politicians that Trump is steaming in Washington, markets cannot be bullied. High stubborn interest rates could, in fact, end with Trump's second season bane.
The Federal Fund sets short -term interest rates that mainly affect banks, and Trump has already trained his guns on Fed Chairman Jay Powell. Trump blames the Fed for failing to give the high inflation that he raged for two years starting in 2022, and he tasting the fed When he chose to surrender a rate cut at his last meeting in January.
What most consumers and businesses are concerned about are longer -term rates such as those on mortgages, car funding and business loans.
Long -term and long -term rates usually move in the same direction, which means that the Fed has some influence over the borrowing rates that most people pay. But markets also have a voice. And since last September, long -term rates, represented by the product on the Treasury Bond 10 years, have increased about a percentage point although the Fed has cut short -term rates.
The bond market does not explain itself, but investors are taking the increase in 10 year rates to reflect concerns about higher inflation in the future. Those concerns also appear in other data, such as Michigan University's monthly user surveys, which show that consumers are increasingly believing that inflation will be higher year and five years from now.
There are two main reasons that inflation could get worse.
One is that prices hike in some spending categories, such as houses, insurance and childcareremained continuously high, along with Egg prices crashing the eggs caused by bird flu. There is not much that Trump can do about that. The other reason is that businesses and consumers expect Trump tariffs to raise prices of more than they would normally go up. There's something Trump can do about that. But so far, he chooses not.
Tariffs are one of Trump's favorite policy tools, and uses them luxuriously. Trump has imposed a 10% tariff on most Chinese imports and 25% tariffs on the largest imported steel and aluminum. It has threatened 25% tariffs on Mexican and Canadian imports along with “bilateral” tariffs adapted on a host of trading partners that put higher obstacles to buying American goods than we do on their ones.
Trump says that “Call ”lower interest ratesAnd through some unexplained logic, he seems to think that that would complement his tariffs. If Trump had complete control of the federal fund, he could force him to reduce short -term rates. The likely result would be even worse inflation, such as History has shown. Fortunately for investors, Trump does not control the Fed, and the Chairman Powell has indicated that it will continue to be impermeable to political pressure.
There is almost nothing that Trump can do or could do to manage long -term rates, which could make it increasingly irascible. If inflation is getting higher, as some expect, rates are likely to go higher as well. That is because the value of erosion of money forces investors to seek higher returns to commit their money.
Mainstream forecasters believe the Treasury's 10 -year rate will remain close to its current level, about 4.5%, for the next year or two. That equates to mortgage rates of around 7%.
Capital Economics says the Treasury 10 years could hit 4.75% if Trump's tariff war eventually gets worse than markets expect. Some strategist thought it might be at the top of the 5%with most consumer and other business rates arising accordingly.
There is nothing wrong with interest rates at those levels – except that they will probably upset Trump.
During his first term (before Covid), the Treasury 10 years Only 2.42% on average – and even then Trump complain that the rates are too high. Rates are now almost double those levels. Mortgage rates, currently about 7%, are almost historic averages, but almost three points higher than during Trump's first season. The affordability of housing is much worse now than during Trump 1.0.
Trump promotes himself as the repairer who can solve every problem that other politicians cannot, by being able to deal advanced and other unique talents. So political analysts are starting to coincide with what Trump could do when interest rates disobey his order to decline.
Cyber Jaret from TD Cowen suggests that Trump could push for the higher government role in capping interest rates, starting with the rates on credit card balances, which are often double digits. “We are concerned that the door is starting to open on giving us a stronger usury authority to the federal government,” cyber wrote in analysis on February 12.
One reason that might be concerned is that it could give a bank profit. That may not bother ordinary people, except that banks that fail to set rates would be high enough to pricing risks would borrow less money-and possibly stop borrowing to higher risk lenders altogether. A credit crush would hurt some consumers and possibly slow the whole economy.
Watch Rates: President Donald Trump speaks to reporters at the White House Oval Office, where he signed an executive order, Thursday, February 13, 2025, in Washington. (Photo/Ben Curtis) ·Press
Peter Orszag, CEO of investment company Lazard, argues that other countries seeking revenge in the midst of Trump's trade wars could even use higher rates as a form of economic weapon. If US foreign debt holders like Japan and China wanted revenge against Trump's tariffs, they could sell some of their Treasury holdings, which would push U.S. rates up and force the entire US economy to deal with higher borrowing costs.
It may all sound a little great, but so also hiring tech oligarch with no government experience to the right size of federal bureaucracy That's multiples more than the largest corporation. If rates come down and Trump seems satisfied, then it could be a fake alarm.
But no one can be sure what Trump, growing used to get his way, will do it when he meets uninteresting market resistance.
Rick Newman is a senior columnist Yahoo finance. Follow it on Bluesky and X: @rickjnewman.
