5 days ago
The math behind Trump's Fed critique doesn't add up
President Donald Trump has long called himself the King of Debt, his companies' six bankruptcies notwithstanding. But as one of his recent Truth Social posts shows, he surely isn't the King of Arithmetic.
On July 9, as part of his ongoing pressure campaign against Federal Reserve Chair Jerome Powell, Trump posted this on Truth Social: 'Our Fed Rate is AT LEAST 3 Points too high. 'Too Late' is costing the U.S. 360 Billion Dollars a Point, PER YEAR, in refinancing costs."
That figure—$360 billion in savings per percentage point drop in the federal-funds rate—probably looks right to people who don't know how the U.S. national debt works, which may well include Trump himself.
But it isn't right.
Yes, with the U.S. national debt at $36.6 trillion, a 1% drop in the debt's rate would, in fact, save taxpayers about $360 billion a year in interest costs. (Not in 'refinancing costs"—but let's give Trump the benefit of the doubt and assume he meant 'interest costs.") And yes, the Fed controls the fed-funds rate, a short-term rate that affects the interest cost of the Treasury's short-term borrowings.
However, there are several major problems with Trump's math and his logic.
Here is the deal.
The Fed doesn't control midterm and long-term borrowing rates—the type of borrowing that makes up the bulk of the publicly traded national debt.
Short-term Treasury bills, which are the only part of the debt that is heavily affected by the Fed-funds rate, make up just $5.78 trillion of the total publicly traded debt. But the amount of outstanding T-bills is dwarfed by the $15.07 trillion of outstanding Treasury notes, with an average interest rate of 3.05%, and the $5.03 trillion of outstanding bonds, which has an average interest rate of 3.3%.
Overall, the publicly tradable portion of the debt has a weighted average maturity—the average amount of time until the government must pay—of a bit under six years. The average interest rate is 3.3%.
So even if Jerome Powell woke up tomorrow morning and asked his fellow Fedniks to cut the fed-funds rate from its current 4.25%-4.5% to 3.25%-3.5%, it wouldn't save taxpayers anything resembling the $360 billion a year that Trump has touted. My calculations suggest the figure is closer to $90 billion.
I wanted to discuss this mathematical discrepancy with the Trump administration, but the White House press office declined to comment.
Whatever you might think of Trump and his policies, numbers are numbers. Sure, a lower fed-funds interest rate would reduce the interest expenses of the Treasury—i.e., taxpayers—below what they would otherwise be when the Treasury issues short-term debt.
We are sure to see a lot of that happening soon, given the current federal budget deficit and the $3.4 trillion to $5 trillion in additional deficits that some nonpartisan groups estimate will be caused by Trump's signature Big Beautiful tax legislation over the next decade.
I have been writing about Trump since his days as a New York City real estate developer. At the time, he didn't have much of a national profile, or a way with numbers. His numbers often turned out poorly for him and his creditors.
His now-vanished casino empire in New Jersey had no fewer than five Chapter 11 bankruptcies: one for each of the three casinos he owned, then two more for the postbankruptcy company that was created to hold his three casinos after their initial bankruptcy filings. The company had a third bankruptcy, but by then Trump wasn't running it.
Trump's Plaza Hotel in New York went bankrupt, too.
When he was elected president in 2016, Trump said he would produce budget surpluses and repay the entire national debt in just eight years. Instead, the debt grew by about $8 trillion during his first term—although, in fairness, part of that debt-growth was caused by the economic damage of the Covid-19 pandemic.
As Trump continues his campaign against Powell, look for him to produce more whimsical numbers that are meant to point to Powell's supposed part in creating federal budget deficits, for which Trump doesn't seem to accept any blame.
But make sure to take Trump's numbers with a grain of salt. Or even better, with a saltshaker full.
Allan Sloan is an independent business journalist and seven-time winner of the Loeb Award, business journalism's highest honor.
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