Politico: Trump’s affordability crisis is about to hit a new level
Long-term interest rates are higher than at any point since President George W. Bush was in the White House. To Treasury Secretary Scott Bessent, that’s a reflection of investor confidence in President Donald Trump’s economy.
If the administration is selling growth, voters aren’t buying it.
Trump’s economic-approval rating has languished near historic lows for months amid frustration with cost-of-living issues that are central to the midterm elections. Now, the surge in yields on long-term government debt — a global trend that’s being driven by growing deficits, an artificial intelligence investment boom and rising energy costs due to the Iran war — threatens to stoke that anger by pushing up rates even more on mortgages and consumer loans.
Bessent calls himself the nation’s leading bond salesman, but his recent efforts to bring long-term yields in line have failed to quell Wall Street’s jitters about the broader forces that risk keeping inflation higher over time. Those concerns have also raised the likelihood that the Federal Reserve will lift short-term borrowing costs. And while the U.S. economy is generally viewed as sound, the bond market’s retching may further derail the GOP’s bid to hold onto its congressional majorities in November.
“It’s certainly a political problem,” said Ed Yardeni, president and chief investment strategist at Yardeni Research. “And Bessent’s holding the hot potato.”
Since Trump took office last year, the U.S. has been “the best performing bond market among major countries in the world,” he said.
But the U.S.’s relative strength in global financial markets is cold comfort for voters who’ve bristled at the administration’s approach to cost-of-living issues. A majority of Americans say groceries, gas and other expenses have become less affordable since Trump returned to office, according to POLITICO’s monthly survey. Higher borrowing costs only add to those burdens as Republicans prepare to face voters in November.
“Clearly not an advantage for us,” Rep. Pete Sessions (R-Texas) told POLITICO when asked about the effects of higher interest rates. “The war has not been helpful to the price of gasoline, nor a number of other factors. So, are [voters] going to hold us accountable? I think it’s entirely possible that that could be a factor that is not in our advantage.”
Trump himself has been sensitive to how bond investors react to his policies. He paused “Liberation Day” tariffs last year after debt markets started to get “yippy.”
“He was definitely keeping track of it. I know he asked Bessent for updates pretty frequently,” said a senior White House official, granted anonymity to discuss the president’s thinking on the bond market. “He’s always concerned about these economic indicators, whether it’s bonds, the market, crypto. He’s always in tune with that. From his standpoint, you never want to see anything that bumps these bonds up to the level that they’re at.”
Asked about how rising bond yields are affecting the political outlook for Republicans, Bessent said, “The most important thing is that we have higher growth,” citing how workers have fared under Trump compared to former President Joe Biden, when inflation surpassed wage growth. (The latest average hourly earnings data from the Labor Department shows that wages have fallen over the last year, however, when adjusted for inflation.)
“We have temporary, elevated energy prices, and these prices will come down. I don’t know whether it’s today, tomorrow, or next week,” Bessent added. “We will get to the other side of this.”
The White House did not immediately respond to a request for comment.
Bessent surprised market participants last month with a new bond-buying plan designed to push down the interest rate the federal government pays on long-term debt, and he has hinted at having a “big toolkit” to address future challenges in long-dated Treasuries. The announcement helped alleviate some pressure, but Wall Street heavyweights — including Bessent’s former boss Stanley Druckenmiller — warn that future action may undermine faith in U.S. markets.
The bond market was not formally on the G20 agenda. But the jump in long-term borrowing costs loomed over the gathering, as finance ministers and central bankers grapple with similar forces pushing yields higher across major economies.
For now, the economy’s resilience has failed to lift Trump’s approval ratings. Even though the jobless rate remains below historical averages — and despite the wage gains notched through his first year back in office — tariffs, the Iran war and the immigration crackdown have pushed consumer prices higher. Inflation remains well above the Federal Reserve’s annual target of 2 percent.
That has kept pressure on new Fed Chair Kevin Warsh to raise short-term borrowing costs when the central bank’s rate-setting committee meets later this month. The president had vowed that his pick to lead the Fed would lower rates — Bessent and Trump adviser Peter Navarro have cautioned against hikes — but Warsh laid the base for a possible increase during a closely watched speech in Jackson Hole, Wyoming, last week.
The Fed has less control over long-term rates, which are shaped by the market’s perception of fiscal and economic forces. Bessent told reporters that he’s working on a “fulsome package” of fiscal reforms with White House budget director Russ Vought in a bid to bring down deficits. Ultimately, that responsibility will fall to Congress.
“The bond market is sending a signal to members of Congress who want to spend beyond their means. We need to start living within our means so that Treasury yields start going in the right direction,” said Rep. Andy Barr (R-Ky.).
###