Trump is facing a new inflation warning from the bond market, adding to his midterm challenges
Rising U.S. Treasury yields and mortgage rates—now at 4.44% and nine-month highs—are worsening affordability, with economists warning Trump’s deficit-reduction plans are unrealistic amid $1.8 trillion annual deficits and $5 trillion tax cuts. Democrats are using higher borrowing costs as a campaign issue, linking them to housing and auto expenses ahead of November’s midterms.
Rising interest rates are straining the U.S. economy, with the 10-year Treasury yield climbing to 4.44%—up from 3.95% before the Iran war began in late February—and mortgage rates hitting nine-month highs. The spike, driven by inflation and concerns over government debt sustainability, is increasing costs for homes and cars, while auto sales decline. Economists dismiss President Donald Trump’s deficit-reduction strategies as unlikely to work. His proposed measures—tariffs, a visa program, and spending cuts—fail to offset the $5 trillion added to deficits by his 2017 tax cuts, according to Jessica Riedl of the Brookings Institution. National debt servicing costs have tripled since 2021 to over $1 trillion annually, with deficits projected to exceed $4 trillion within a decade. The bond market’s reaction reflects fears of unsustainable borrowing. Kent Smetters of Penn Wharton Budget Model attributes 60% of rising 30-year Treasury yields to expectations of continued high deficits, while 40% stems from Iran war-driven inflation and Trump’s proposed tariffs. Former White House economist Glenn Hubbard warns the U.S. may lack the borrowing capacity to address future crises like the 2008 financial crash or COVID-19 pandemic. Higher rates are becoming a political liability for Republicans. In Colorado’s 5th congressional district, Democrat Jessica Killin is campaigning on the issue, framing persistent deficits and rising interest costs as barriers to homeownership and credit card management. Voters’ concerns over affordability—amplified by food and gasoline price hikes—are giving Democrats an edge in midterm election messaging. Trump has claimed his fraud task force, led by Vice President JD Vance, could unlock budget savings, but analysts remain skeptical. Without structural reforms, the U.S. faces long-term fiscal challenges, with Social Security and Medicare costs outpacing tax revenue growth. The bond market’s warning signals growing unease over the nation’s economic trajectory ahead of November’s elections.
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