In the Face of High Debt and High Rates, the Answer Is Growth: The Trump Economic Team's Bet

【Financial News, New York = Reporter Lee Byung-chul】  U.S. President Donald Trump and U.S. Secretary of the Treasury Scott Bessent have both turned to "growth" as the key tool for overcoming the high interest rates and national debt burden weighing on the U.S. economy. Trump directly pushed back against the Fed's argument for higher rates, saying that rapid economic growth does not necessarily cause inflation. Bessent also said economic growth is the answer to market concerns over the more than $40 trillion in national debt and rising long-term Treasury yields.
At a White House event on lowering prescription drug prices on the 31st (local time), Trump said, "We can have GDP growth of 14%, 15%, 16%, even 20%." He added, "Growth does not cause inflation." His remarks were a direct rebuttal to the Fed's logic that rates should stay high, or be raised further, because of inflation.
The Fed kept its benchmark rate unchanged at 3.50% to 3.75% in July. At that time, three members of the Federal Open Market Committee (FOMC) argued instead for a 0.25 percentage point hike. Kevin Warsh, who is also being mentioned as a possible Fed chair, said in a Jackson Hole speech on the 28th of last month that if he was not convinced inflation was falling fast enough toward the Fed's 2% target, "there is work to be done," signaling the possibility of additional rate increases. Markets are also discussing the chance of another rate hike at the September FOMC meeting.
Trump, by contrast, argued that U.S. interest rates should be among the lowest in the world. "In the past, when good economic data came out, rates went down," he said. "Now, when good numbers come out, rates go up because people are too afraid of inflation."
Trump's argument is based on the idea that economic growth does not always lead to inflation. If productivity and production capacity expand along with demand, prices may not rise sharply even when the economy grows quickly. On the other hand, if demand grows faster than the economy's ability to expand production, inflationary pressure can increase.
Still, the growth rates Trump cited are far above the current pace of the U.S. economy. In the second quarter of this year, real U.S. GDP grew at an annualized rate of just 1.5%.
On the same day, growth was also the key message the United States put forward at the G20 finance ministers and central bank governors' meeting in Asheville, North Carolina. Speaking to reporters, Bessent said, "Since the global financial crisis and COVID-19, the world has been flooded with debt." He added, "The only way out is to solve it through growth." His point was that rather than relying only on austerity to reduce the debt burden that has ballooned in the U.S. and around the world, economies should expand growth to increase output and tax revenue, thereby lowering debt relative to GDP.
Global debt this year has climbed to about $353 trillion, a record high. In the United States as well, national debt has surpassed $40 trillion, and concerns are growing over the fiscal deficit and rising interest costs. Heavy Treasury issuance and worries about fiscal soundness are also pushing investors to demand higher yields on long-term bonds, adding to upward pressure on long-term rates.
U.S. Treasury yields have in fact surged again recently. On that day, the yield on the 10-year Treasury note briefly topped 4.75%, reaching its highest level since January last year. Inflation concerns also intensified again as international oil prices rose above $90 a barrel amid renewed fighting in the Iran War.
Bessent, however, pushed back against fears about the U.S. Treasury market, saying they were exaggerated. In an interview with CNBC, he said, "First of all, I don't know where the turmoil in the Treasury market is." He added, "This year, the U.S. Treasury market has been performing better than those of major countries."
In the end, the Trump administration's answer can be summed up as a direct push for growth. Trump is pressing the Fed for lower rates, arguing that growth should not be equated with inflation. Bessent is making the case that higher growth would expand the economy and tax revenue, easing the national debt burden, while also stressing that the fundamentals of the U.S. Treasury market remain strong.
For Bessent in particular, growth is also the core argument for responding to rising long-term yields. The U.S. Department of the Treasury recently decided to double the size of its buybacks of 10- to 30-year Treasuries, from at least $2 billion per operation to $4 billion. The expanded buybacks will begin on the 10th.
The Treasury says the move is intended to improve liquidity in the long-term bond market and ensure smoother market functioning. But the expansion came just after 30-year Treasury yields surged to their highest level in 19 years, prompting criticism in the market that the Treasury may be directly intervening to push long-term rates lower.
Bessent flatly rejected that criticism. He said he does not think he can change the "equilibrium price" of Treasuries, and stressed that his role is to slow market moves and prevent disorderly conditions. The Treasury plans to keep its existing auction schedule unchanged despite the expanded buybacks.




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