The global financial landscape is becoming strict when it comes to lending money to the U.S. government. This results in rising interest rates, which intensify affordability issues, slow economic growth, and pose new risks for Republicans in the upcoming midterm elections.
Energy prices have surged due to the conflict with Iran, affecting the cost of bonds that fund Donald Trump’s administration. Rates on a 10-year U.S. Treasury bond have exceeded 4.44%, up from 3.95% before the war began in late February. Average mortgage rates have reached their highest levels in nine months, and car sales are plummeting.
Interest rates are increasing in various countries, responding to the prospect of higher inflation, doubts about public debt sustainability, and a surge in investment in artificial intelligence. President Trump has assured Americans of his plan to reduce the annual budget deficit of about $1.8 trillion. He has highlighted revenue from tariffs, payments from foreigners for the ‘golden’ visa, spending cuts by the Department of Government Efficiency, and faster economic growth as strategies for deficit reduction. Recently, he emphasized the anti-fraud task force led by Vice President JD Vance as key to achieving substantial savings.
“If it does really well, we’ll have a balanced budget without having to do anything,” stated Trump.
Economists doubt the feasibility of Trump’s deficit reduction strategies. From 2021 onward, the cost of servicing the national debt has tripled to more than $1 trillion annually, noted Jessica Riedl, a budget and tax researcher at the Brookings Institution. She mentioned that Trump’s tax cut law could add $5 trillion to deficits over ten years. Tariffs only offset a minimal portion of these costs.
“Still, it’s projected that budget deficits will soar beyond $4 trillion annually within a decade with current policies,” explained Riedl.
Deficits are expected to escalate as Social Security and Medicare costs outpace tax revenues. The Treasury’s 10-year rate reached 4.67% mid-May but moderated later, as ceasefire negotiations with Iran progressed. Rates initially rose in 2025 due to Trump’s ‘Liberation Day’ tariffs and then declined after he backed off extreme increases.
Kent Smetters, academic director at the Penn Wharton Budget Model, dissected numbers related to increased 30-year Treasury bond yields. He estimated that 60% of the rise stemmed from expectations of ongoing U.S. disproportionate borrowing, while 40% was linked to inflation driven by the Iran conflict and Trump’s tariffs.
Glenn Hubbard, former Chair of the Council of Economic Advisors during George W. Bush’s presidency, fears the U.S. lacks borrowing capacity to effectively counter a crisis akin to the 2008 downturn or the COVID-19 pandemic. “I don’t think we have the margin we had in 2008 or 2020 to confront it,” stated Hubbard, now a professor at Columbia University’s Business School.
Higher interest rates are a concern for voters, offering Democrats an attack line in contests deciding control of the House and Senate. Voters are worried about the high costs of food and gasoline.
In Colorado’s fifth congressional district, Democrat Jessica Killin emphasizes that persistent deficits and higher rates make it difficult to buy or renovate a home, afford a new car, or manage credit card debt.
“Things are expensive already,” noted Killin, an Army veteran who was a senior advisor to former Second Gentleman Doug Emhoff.
“We can talk about gas prices, but borrowing costs make it worse.”
Joe Reagan, an Army veteran also running for the Democratic nomination, stated in an email that his campaign extensively discusses fiscal responsibility.
“Every dollar spent on interest is a dollar not invested in infrastructure, education, veteran services, or economic growth,”
he declared.
Both are challenging Republican Representative Jeff Crank in a district the GOP views as a potential gain. Killin claims the deficit highlights how ‘Trump says one thing and does another.’
At a March 2025 Congressional address, Trump declared intentions to balance the federal budget ‘in the near future.’ Crank, the incumbent Republican, did not respond to requests for comment.
Fraud reduction is a new deficit strategy. The administration aims to consistently cut budget deficits. Last year’s deficit was lower than in 2024, partly due to tariff revenues subject to refunds after Supreme Court rulings. Treasury Secretary Scott Bessent mentioned a report citing potential elimination of up to $500 billion annually in fraudulent public spending, substantially reducing the deficit. Bessent based this on a 2024 report from the U.S. Government Accountability Office estimating $233 billion to $521 billion in annual fraudulent spending.
Bessent indicated the worst budget deficit was inherited from former President Joe Biden, a Democrat.
“We inherited the worst budget deficit in history – in history – without recession or war,”
stated Bessent.
Bessent had earlier announced intentions to reduce the annual deficit to 3% of the U.S.’s total GDP. It’s currently approximately double that percentage, and Bessent didn’t specify a timeline for his goal.
Meanwhile, investors continue purchasing U.S. company stocks, boosting market value as a sign of confidence in the nation’s economic potential. But rising interest rates indicate that investors view national debt as a liability for the U.S.
Financial markets could exert enough pressure with higher rates to compel political leaders to address systemic imbalances. Economists expect markets might force the deficit issue before voters do.
Hubbard emphasized that the bond market relies on the trust in debt repayment. He noted that the term ‘credit’ is derived from a Latin term related to belief systems.
“Debt is about believing you’ll be paid,”
said Hubbard.
“It works until it doesn’t.”