Rate Expectations
Unpacking the Risks Behind Trump’s 300 Basis Point Proposal
President Trump’s latest economic proposal is a bold one: slash interest rates by 300 basis points. That’s a full 3% cut. On the surface, it sounds like a powerful move to ease borrowing costs and spark growth. But look a little closer, and the picture gets murkier.
This would be the largest single rate cut in modern U.S. history. The last time we saw anything remotely close was during the depths of the COVID-19 crisis in March 2020, when the Federal Reserve slashed rates by 100 basis points. Back then, we were staring down a potential depression. Today, the economy is growing at 3.8%.
This isn't a rescue mission. It's a gamble. And it makes my brain hurt just thinking about it.
The Numbers: Promises vs. Practical Reality
Trump claims his proposed cut would save the federal government $360 billion per year in interest expenses. That number has been making the rounds on social media and cable news. But it doesn’t hold up.
That estimate assumes that all $36 trillion of U.S. debt can be refinanced overnight at 3% lower rates. But only about $29 trillion of that debt is actually held by the public. The rest is intragovernmental, such as Social Security trust funds.
And even if we look only at the publicly held debt, it’s not all up for grabs. Treasury maturities are staggered. Realistically, maybe 20% of that debt could be refinanced in a given year without disrupting the bond market.
Here’s how the math actually works:
$29 trillion public debt
20% = $5.8 trillion potentially refinanced
Current average interest rate = 3.3%
New rate after 3% cut = 0.3%
Interest savings = $174 billion in the first year
It’s still a big number, but it’s not $360 billion. And it comes with real tradeoffs.
The Housing Market: Fuel on a Fire
Let’s talk housing, because this is where things could get explosive.
Mortgage rates right now are hovering around 7%. A 3% rate cut could bring them down to 4% or lower. That sounds great for affordability, right?
Not so fast.
In theory, lower rates make homes more affordable. But in practice, they push prices higher—sometimes much higher. We saw this during the pandemic. When rates plunged to historic lows, buyers rushed in, bidding wars erupted, and prices soared.
The Case-Shiller Home Price Index jumped over 40% from 2020 to 2022. Entire neighborhoods became out of reach for first-time buyers. Investors piled in, snapping up single-family homes and converting them into rentals.
If rates fall to 4% again, we could easily see another 25% jump in home prices. That’s not just a guess—it’s what past data suggests. And it means that any "affordability" benefit from lower rates gets eaten up by rising prices.
Even worse, it could lock out an entire generation of buyers.
People trying to buy their first home would face soaring prices and shrinking inventory. Sellers would be reluctant to give up their low-rate mortgages, keeping supply tight. Builders, already constrained by labor and materials, couldn’t keep up.
You'd get more competition, more frustration, and more inequality. All while asset owners—people who already have homes—watch their net worth skyrocket.
This is the dark side of cheap money. It doesn't help everyone equally. It inflates the balance sheets of those who already own, while leaving everyone else chasing shadows.
Small Business Lending: A Mixed Bag
For small businesses, especially those relying on SBA 7(a) and 504 loans, a 3% rate cut would bring immediate but uneven impacts.
On one hand, lower rates would reduce debt service costs for variable-rate SBA 7(a) borrowers, many of whom are tied to the prime rate. It would also make long-term 504 loans cheaper, potentially spurring investment in real estate and equipment. A wave of refinancing could follow, as existing borrowers look to lock in better terms.
On the other hand, falling rates could once again push up commercial real estate prices, inflating the cost of expansion or acquisition. Rising asset values can actually make it harder for new borrowers to meet equity requirements or qualify under standard SBA terms. And while refinancing helps those already in the system, it does little for newer or cash-strapped businesses facing rising costs in every other part of their operation.
As with housing, cheap money inflates values. That can help some—but it leaves others running in place.
Inflation: The Risk That Never Sleeps
Now let’s talk inflation. Cutting rates in a hot economy is like opening the throttle on a car already speeding down the freeway.
Economic research shows that aggressive rate cuts in non-recessionary periods almost always lead to inflation. A 2023 study from the Federal Reserve, published in the Journal of Monetary Economics, found that cuts like this can drive inflation well above 5%.
The logic is simple: lower rates mean cheaper borrowing, which leads to more spending, more investment, and more speculative behavior. When that happens in an already-strong economy, demand can outstrip supply, driving prices up across the board.
We’re already seeing early warning signs:
The U.S. dollar has dropped 10.8% in the first half of 2025, the worst performance since 1973.
Commodity prices are rising. Oil is above $80 a barrel. Gold is climbing toward $5,000 an ounce.
Asset markets—from stocks to crypto to real estate—are bubbling again.
You don’t need a PhD in economics to know what comes next. Once inflation gains momentum, it’s hard to stop. And rate cuts, once made, are politically hard to undo.
Currency Stability and Global Trust
Rate cuts this deep would also weaken the U.S. dollar even more. While that might help exporters in the short term, it comes at a cost.
A weaker dollar makes imports more expensive, which fuels inflation at home. It also erodes global trust in the U.S. financial system. Investors might start looking elsewhere to park their capital, especially if they think the Fed has become a political tool.
The last time we saw this kind of pressure was in the 1970s—a period known for stagflation, dollar instability, and prolonged economic pain.
Asset Prices: Illusions of Prosperity
Let’s be honest: if rates drop by 3%, markets are going to soar.
The S&P 500 could blow well past 7,000.
Home prices could jump 25%.
Gold might top $5,000/oz.
Crypto would come roaring back.
It would feel like a boom. But it wouldn’t be real.
These aren’t gains tied to productivity or innovation. They’re paper gains, inflated by monetary distortion. And the people who benefit most are those who already have assets. The rest of the country—those trying to build wealth, not just preserve it—get left further behind.
That’s not economic growth. It’s a mirage.
The Real Problem: Spending, Not Rates
Here’s the core issue: the U.S. has a spending problem, not a rate problem.
In May 2025 alone, the Treasury posted a $316 billion deficit. That’s the third-largest monthly deficit in American history. And the overall trajectory points to $2.5 trillion in deficits for the year.
Interest payments are rising because we keep borrowing more, not just because rates are high. Slashing rates is a temporary patch on a structural wound.
If we want to reduce debt service costs over time, we need:
Serious spending reform
Long-term entitlement sustainability
Targeted tax simplification and enforcement
Growth through real productivity, not monetary sugar highs
None of these are easy. But they’re the only path to real stability.
What Leadership Looks Like
It’s tempting to reach for the rate-cut lever. It’s politically popular, makes for good headlines, and juices markets. But leadership isn’t about what’s easy. It’s about what’s necessary.
An unprecedented 300 basis point cut in a strong economy isn’t strategy. It’s desperation.
We should be focusing on the real levers of economic health: structural reform, balanced budgets, smarter regulation, and long-term investment in things that actually grow the pie.
Otherwise, we’re just moving numbers around while the foundation cracks beneath us.
Final Thought: Beware the Free Lunch
There’s no such thing as a free lunch in economics. Every rate cut has a cost. Every shortcut comes due.
This proposal might save $174 billion in the short term. But it risks much more in inflation, inequality, housing instability, and global trust.
Before we cheer for cheap money, we need to ask: what’s the real price?
Because history tells us—and common sense confirms it—when something seems too good to be true, it usually is.