Trump ropes Fed into debt fight as GOP faces fiscal mess

President Trump is pushing the Federal Reserve to go beyond its legal mandate and help him manage the national debt as Republicans face growing pressure over the nation’s finances.

In a series of remarks and social media posts, Trump has ripped Fed Chair Jerome Powell for refusing to lower interest rates, insisting he should help the White House manage the costs of servicing more than $36 trillion in national debt.

“'Too Late' Jerome Powell is costing our Country Hundreds of Billions of Dollars. He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit,” Trump wrote Thursday on Truth Social, a day after the Fed held interest rates steady.

While Trump has spent most of his two White House stints berating Powell to cut rates, only recently has he tied those demands to the country’s deteriorating fiscal health.

“We're beginning to see what I think are the early warning signs that the Fed is going to be increasingly called upon to keep the government solvent,” said David Beckworth, senior research fellow and monetary policy director at the Mercatus Center, a libertarian-leaning think tank at George Mason University.

“When you begin to see this type of rhetoric, it's a clear sign that people are beginning to get nervous,” Beckworth explained. “And how else can we save money? Well, let's turn into the Fed and put pressure on them.”

Trump’s fiscal mess

Trump’s escalating pressure on Powell over the national debt comes as he and Republicans stand to add trillions of dollars to it through a major tax-cut bill.

Republican lawmakers are attempting to find common ground on what Trump has called his “big, beautiful bill.” The legislation features an extension of his 2017 tax cuts, additional cuts the president proposed during the 2024 campaign, and steep cuts to social safety net programs.

While GOP lawmakers claim the bill would help solve the country’s fiscal woes, a range of ideologically diverse analysts forecast the bill to add anywhere between $2 trillion to nearly $4 trillion to the national debt.

At the same time, Trump is attempting to secure GOP support to raise the debt ceiling before the Treasury Department runs out of ways to avoid a default — a deadline that could come as soon as August.

Trump is “kind of speaking out of both sides of his mouth,” said Dan Alpert, managing partner at investment firm Westwood Capital.

“He's got this enormous, $3.5 trillion dollar continuation of a tax cut from his first term that he wants to get across the line,” Alpert added.

Republican lawmakers have argued that such estimates don’t take into account the economic growth unlocked by lower tax rates, which they say would help narrow deficits over time.

But the Congressional Budget Office (CBO) found that even when accounting for growth impacts, the bill would add $3.3 trillion to the debt over the next 10 years — more than the CBO projected without considering the preferred GOP scoring.

“The fundamental issue is we have a Congress and a president who cannot bring the budget deficit under control,” Beckworth said. 

While both Republicans and Democrats are to blame, he added, “for a party that has claimed historically it is concerned about their debt burden, it is going to blow things up even more.”

The Fed in the fray

Trump’s efforts to push the Fed into managing the debt mark a significant break from more than 70 years of federal economic policy.

During World War I and II, the Fed yielded to pressure from presidential administrations to keep interest rates low and ease the burden of the rising debt.

While that practice extended for nearly a decade after the bombing of Pearl Harbor, the Fed and Treasury Department eventually reached an agreement in 1951, setting the stage for the next seven decades of economic management.

“The purpose of the ‘accord’ was to make Treasury manage its debt, rather than expecting the Fed to ‘monetize’ it. In turn, the Fed asserted its control of monetary policy via the setting of interest rates to meet congressional mandates for price stability and maximizing employment,” said Sarah Binder, political science professor at George Washington University and co-author of “The Myth of Independence: How Congress Governs the Federal Reserve.”

The Fed has since avoided anything that could be considered financing the federal debt while sticking to its “dual mandate” of balancing unemployment and inflation. And while several presidents have verbally pressured the Fed to keep rates low since 1951, none has made a formal move to limit its legal authority over monetary policy.

“Based on most concepts of 'independent' monetary policy, the central bank shouldn't be monetizing the debt. That is, it shouldn't be taking the administration's financing needs into account when it aims to meet its mandates,” Binder said.

“Those mandates are price stability and strong labor markets," she added. "Congress has not given the Fed an additional mandate to make it easier for the Treasury to finance its debt."

But Trump could be laying the groundwork for a shift toward a “fiscal dominance” regime, Beckworth warned, in which the Fed would be forced to clean up the government’s fiscal mess and abandon the bank’s legal obligation to keep prices stable and unemployment low.

“Maybe we’re not there yet, but we're getting close,” Beckworth said. “If they push, push, push, and then at some point, the Fed loses independence ... and it's no longer able to control inflation.”

Trump’s plan for the Fed

Trump griped Wednesday, hours before the Fed’s latest rate hold, that he was unable to sway Powell into making major interest rate reductions.

“He’s not a smart person,” Trump said of Powell. “I think he hates me, but that’s OK, you know, he should. He should. I call him every name in the book to get him to do something.”

Powell brushed off several questions Wednesday about Trump's attacks and the potential debt impact of the president's agenda, but he has implored the White House and Congress throughout his time as Fed chief to get the nation's finances on a sustainable track.

Trump will be able to add “former Chair” to his list of names for Powell come 2026, when his four-year term leading the Fed board lapses. Whomever Trump nominates to succeed Powell will almost certainly be more aligned with the president’s thinking and face an easy path to confirmation in a GOP-controlled Senate.

Even so, Powell is but one of 12 Fed officials on the Federal Open Market Committee (FOMC) who vote to set interest rates — all of whom voted to keep borrowing costs steady Wednesday.

“Even if you got rid of Powell, you’d have to remake the FOMC with yes-men,” Beckworth said.

Powell could also choose to stay on as a member of the Fed board through 2028. That would be an usual move for a former Fed chair, but Powell has not ruled it out.

“Powell has not budged, and the FOMC has not budged despite Trump's incessant ranting and pressure and whatever else he can throw at them,” Beckworth said.

“They’re still sticking to their guns.”