Affordability? Trump's foreign policy is driving up interest rates
Get the Geopolitics newsletter
Daily geopolitics — wars, elections, sanctions, the diplomatic moves that move markets. Free.
- Treasury Secretary Bessent announced two rare interventions in the past month — helping Japan strengthen the yen for the first time since the 1998 Asian Financial Crisis and signaling a potential doubling of long-dated Treasury buybacks — aimed at containing 30-year yields that reached 5.3%, a level last seen in 2007.
- U.S. government debt crossed $40 trillion with a $2.1 trillion fiscal deficit (~6% of GDP), and federal interest payments as a share of GDP are at levels last seen in 1990 — meaning a 0.1% rate increase on the debt stock adds $40 billion in annual costs.
- Trump's foreign policy is amplifying yield pressures through a requested $1.5 trillion military budget, tariffs that the Yale Budget Lab estimates add 0.7% to consumer prices, and the Iran war that has closed the Strait of Hormuz.
- The Iran war worsened the bond market on three fronts: higher U.S. defense spending, massive refinery damage in the Persian Gulf reducing Gulf states' capacity to invest in U.S. bonds, and elevated global inflation risks — with diesel prices near decade highs despite crude oil retreating from early-war highs.
- Federal Reserve independence concerns are spooking investors after White House criticism of the central bank, the push to oust Governor Lisa Cook despite a Supreme Court decision favoring her stay, and three dissenting votes at new Chair Kevin Warsh's first meeting wanting higher rates.
- Allied defense spending demands have left partner countries with less to lend the U.S., and foreign sovereign lenders have grown less important — leaving price-sensitive private investors who demand higher yields as inflation protection.
- Global South markets are diverging: Latin American currencies like Brazil's and Colombia's have been helped by fossil fuel exports and stable U.S. trade, while India and Indonesia have been hit hard as oil-importing nations dependent on Persian Gulf energy.
Why it matters: Bond yields at 5.3% feed into mortgages, business borrowing, and the federal interest bill — a 0.1% rate increase on $40 trillion in debt adds $40 billion annually. Bessent's emergency interventions reveal that Trump's own foreign policy is now undermining his affordability agenda.
Ask SkimNews
