Almost two years since Donald Trump won election pledging to slash prices and fix the US’s public finances, his Iran war and tax cuts have delivered a different outcome: record-high debt, soaring fuel costs and punishing mortgage rates.
Investors pushed yields on long-term US debt to a 19-year high on Tuesday amid alarm at the weight of public borrowing and the war’s inflationary fallout.
Trump’s Treasury secretary, Scott Bessent, rushed to soothe markets a day later, unveiling a programme to “at least double” purchases of long-term debt and plans soon to announce steps to tackle the deficit. The latest market intervention did little to lower Treasury yields and pushed the dollar lower.
Bessent insisted on Thursday that markets had “gotten ahead of themselves”. Trump says the economy is “booming”, as shown by stock market highs.
“The president’s fulminations and his administration’s efforts to intervene in currency and bond markets have an air of desperation, which is only making matters worse and turning market sentiment in an even more unfavourable direction,” said Eswar Prasad, economics professor at Cornell University.
The market tumult underlines how Trump’s economic agenda risks unravelling just as November’s midterm elections loom into view. Polls show Democrats leading the president’s Republicans on their handling of the economy.
Government debt hit a record $40tn this week, with borrowing rising at its fastest pace outside the pandemic era as federal spending outstrips income.
The deficit fell only slightly in the 2025 fiscal year to 5.8 per cent of GDP, from 6.4 per cent in 2024. Trump’s tax cuts are projected to add substantially to deficits in the years ahead, despite cuts to social safety-net programmes including Medicaid health coverage and food assistance for America’s poor.
“We continue to outspend — [and] the spending demands are even greater with the war,” said Diane Swonk, chief economist at KPMG US.
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Bessent, who pledged to lower the deficit to 3 per cent by the end of Trump’s second term, on Thursday insisted there was a “very, very good chance” that it had now peaked. He said economic growth and future tariff duties would boost revenues.
Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think-tank, said deficit reduction would entail tough political choices for Trump, including cuts to Medicare and social security.
“I hope what secretary Bessent is saying is true,” Strain said. “But there are some major questions about how it might work.”
The Treasury did not respond to a request for comment.
On top of the growing debt mountain, Trump’s Iran war is pushing up inflation and has ruined the president’s vow to halve energy prices and drive down basic consumer costs.
Petrol prices have jumped by about 40 per cent since the war broke out to $4.11 a gallon on Friday. Diesel, the fuel that moves goods through the US economy, has risen by a similar margin to $5.58 a gallon.
The average diesel price in Trump’s second term is now higher than under Joe Biden. Mortgage rates are also now rising briskly, even if they remain below the peak seen under Trump’s predecessor.
The 30-year mortgage this week hit 6.65 per cent, up from 5.98 per cent before the war in late February.
“As rates dropped over the final quarter of 2025 and the first quarter of 2026, the political pressure on the administration to tackle housing affordability was less,” said Jaret Seiberg of TD Securities, adding that the White House now has “no choice” but to focus on bringing down rates “even if the relief is temporary”.
Annual consumer price inflation hit a three-year high of 4.2 per cent in May before dropping to 3.4 per cent in July.
Federal Reserve officials worry that persistently high inflation will become embedded in the economy, but they have opted against raising interest rates, fuelling market jitters over their willingness to contain inflation.
The disruption to Middle Eastern energy supplies from the war has overshadowed the modest growth in the US’s own oil output, which Trump had championed as a way to curb prices for Americans.
Art Berman, a Houston-based energy consultant, said Trump’s war had “squandered” the US’s energy advantage.
“My belief is that this administration — and probably every administration back to Franklin Roosevelt — is energy blind. They just don’t get any of this stuff.”
The US remains the world’s biggest oil producer, although the federal Energy Information Administration expects output to rise by just 200,000 barrels a day this year. About 20mn b/d of flows through the Strait of Hormuz have been shut in from the Middle East during Trump’s war.
The debt burden, high borrowing costs and persistent strain of costly fuel and food have weighed on US consumer sentiment, which hovers at record lows. Polls also show voters now think they are worse off under Trump’s handling of the economy.
Economic growth is still strong, thanks to American consumer spending and a rush by Big Tech to pour money into AI infrastructure. But GDP expansion last year of 2.1 per cent and an annualised rate of 1.5 per cent in the second quarter of 2026 are well below the 5-6 per cent predicted by commerce secretary Howard Lutnick or the 3 per cent targeted by Bessent.
On Thursday, the Treasury secretary said the US was still poised to “grow our way out” of its debt hole.
Additional reporting by Akila Quinio in New York
