The global financial landscape is shifting, causing concern over lending money to President Donald Trump’s administration. This change is pushing interest rates higher, adding to affordability issues and stifling economic growth. As the U.S. approaches midterm elections, these developments create a potential hurdle for Republicans.
The recent surge in energy prices due to conflict with Iran is impacting bonds essential for U.S. government funding. The interest rate on a 10-year U.S. Treasury note has risen to 4.44% from 3.95% since the conflict’s outset. Meanwhile, average mortgage rates have reached a nine-month high, and auto sales are declining.
This issue spans globally, with interest rates rising in various countries due to expected inflation, concerns over government debt sustainability, and increased investments in artificial intelligence. President Trump has assured that his plan addresses the approximately $1.8 trillion budget deficit. He cites tariffs, “Gold Card” visa revenues, spending cuts, and economic growth as methods of reduction. Last week, he highlighted Vice President JD Vance’s role in combating fraud as crucial to saving money. Still, economists assert that these strategies are unrealistic in significantly reducing the deficit.
Jessica Riedl of the Brookings Institution points out that servicing the national debt now costs over $1 trillion annually, tripling since 2021. She notes that tax cuts under Trump may add $5 trillion to 10-year deficits, with tariffs covering only a small part of these expenses. Projections suggest deficits could surpass $4 trillion annually as Social Security and Medicare costs exceed tax revenues.
The 10-year U.S. Treasury rate rose to 4.67% in May but has since decreased as Iran ceasefire talks progressed. The increase in Treasury yields is partly due to America’s significant borrowing and inflation linked to the Iran conflict and tariffs.
“I don’t think we have the space that we had in 2008 or 2020 to deal with it,” said Glenn Hubbard from Columbia University’s Business School.
The rising interest rates have become a focal point for voter concern, creating challenges for Republican candidates. In Colorado’s fifth congressional district, Democrat Jessica Killin emphasizes how persistent deficits and higher rates make major purchases and debt management tougher. Fellow Democrat Joe Reagan echoes the sentiment, stressing the importance of fiscal responsibility in his campaign.
Trump’s administration insists that deficits will decrease steadily. Despite lower deficit shares in the previous year, partly influenced by tariff revenues subject to Supreme Court-ordered refunds, future reductions rely on cutting fraudulent spending. Treasury Secretary Scott Bessent highlights a report estimating between $233 billion and $521 billion in annual fraudulent spending, mostly rooted in the pandemic era’s economic measures.
While investors continue to show confidence by buying shares in U.S. companies, indicating trust in the economy’s potential, higher rates suggest that the national debt remains a concern. Economists predict that financial markets, more than voters, will pressure political leaders to address these issues.
The whole economic system relies on trust that debt will be repaid. “That is what debt is about: I believe you will pay me back,” said Hubbard. “That works until it doesn’t.”
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