Donald Trump wants lower interest rates. He has said so openly and has pressured the Federal Reserve accordingly. The political logic seems obvious: easier money boosts asset prices, juices consumer spending, and appears to support headline growth. With midterms approaching, that sugar high is tempting.
But it’s also a mistake — economically, politically, and strategically.
Lower rates at this point in the cycle would almost certainly reignite inflation. And except in the very short run, they would not make capital more affordable in real terms. Instead, they would worsen the affordability crisis (which voters are already upset about) and undermine the GOP’s reputation as the party of economic responsibility.
Inflation is still a major concern. After peaking above 9 percent in 2022, it has come down meaningfully. But core inflation remains sticky, especially in services and housing. Shelter costs are still rising around 3 percent annually. Since shelter comprises a large share of price indices, it is a major contributor to average price growth exceeding the Fed’s two percent target. Insurance, medical services, childcare, and rents continue to climb faster than incomes. The last thing this economy needs is a renewed inflationary surge driven by easier monetary conditions.
Trump’s implicit bet is that lower rates will bring down borrowing costs and make life more affordable. That misunderstands how inflation and interest rates interact.
Nominal rates are not the same as real affordability. If the Fed cuts prematurely and inflation expectations rise, long-term yields will rise with them. That is exactly what happened in 2021–22: loose financial conditions and fiscal excess pushed inflation higher, and mortgage rates ultimately doubled anyway. The average 30-year mortgage rate went from under 3 percent in 2021 to over 7 percent in 2023 — even as the Fed initially insisted inflation was “transitory.” Once inflation expectations shift, credit does not stay cheap.
Inflation makes affordability worse, not better. It raises rents. It pushes up home prices. It increases insurance premiums, service costs, and replacement costs for everything from cars to appliances. Any short-term relief from lower nominal rates is quickly eaten by a higher price level, and since wages tend to lag, American workers pay with reduced purchasing power.
In macro terms, this is the Fisher effect in action: expected inflation gets embedded into nominal interest rates. You don’t get sustainably cheaper capital by eroding the purchasing power of money.
The political consequences are just as bad as the economic ones.
Voters are not angry about GDP growth rates or S&P multiples. They are angry about grocery prices, rent, childcare costs, and insurance premiums. Affordability is the dominant economic issue in polling. A policy that visibly worsens price stability in exchange for a few quarters of rosy headlines will look reckless to a public that already feels economically insecure.
A cheap-money policy would erode Republicans’ hard-earned reputation for supporting sound economic policy. For decades, the GOP has championed lower inflation, fiscal restraint, and respect for market price signals. If Republicans start openly pressuring the Fed to run the economy hot for electoral reasons, they surrender that brand. They blur the distinction between themselves and the inflationary populism that voters have traditionally associated with progressive Democrats.
Excessive pandemic-era spending, burdensome tax policy, regulatory overreach, and energy policy malpractice have done enough damage to long-term price stability already. The Congressional Budget Office now projects persistent trillion-dollar deficits as far as the eye can see. Federal debt held by the public is on track to exceed 100 percent of GDP this decade. That is a textbook setup for fiscal dominance, whereby monetary policy becomes subordinate to the government’s financing needs.
If Republicans now join the inflationary chorus, voters will be left with no serious economic option at all.
A genuine affordability agenda would seek to restore price stability on the demand side while easing regulations and restrictions on the supply side. We need housing abundance, energy production, and infrastructure renewal. Ultimately, affordability comes from productivity growth, not monetary theatrics.
Trump’s preferred monetary policy, by contrast, pursues uncertain short-term political gains at the expense of certain long-term political damage. It risks discrediting the GOP as the party voters trust with the economy at a time when public trust is already fragile.
If Republicans want to be taken seriously as an economic alternative, they should be defending price stability, not flirting with inflationary populism. First and foremost, they should be offering a supply-side reform agenda. There’s nothing wrong with holding misbehaving central bankers accountable. But that shouldn’t translate into reckless inflationism.
There is no durable prosperity built on cheap money and political shortcuts. And there is no political upside, either, to unleashing the next inflation spike. Trump should rethink his rate gambit. If he doesn’t, his legacy will be the first casualty.
