A recent analysis indicates that President Donald Trump’s claim that firing Federal Reserve Chairman Jerome Powell would substantially reduce federal debt costs is unlikely to materialise. Trump has repeatedly advocated for the Fed to slash its benchmark interest rate, currently between 4.25 per cent and 4.5 per cent, by approximately three percentage points, asserting it would save over $US1 trillion. However, Deutsche Bank economists suggest otherwise.
According to Matthew Luzzetti, chief US economist for Deutsche Bank, along with strategists Matthew Raskin and Steven Zeng, “Removing Powell won’t move the needle” significantly on the Treasury Department’s debt-interest costs. Their analysis extrapolated market reactions from a period in July when reports surfaced about Trump considering Powell’s dismissal. While short-term Treasury yields decreased, longer-term yields increased, driven by concerns that a more accommodating Fed could lead to higher inflation over time.
The Deutsche Bank team concluded that the savings from lower short-term yields would be largely offset by increased long-term yields. Their calculations suggest that the Treasury would save only between $US12 billion and $US15 billion through 2027 if Powell were removed. These findings contradict Trump’s assertion of trillion-dollar savings.
Rising interest rates, implemented by the Fed since 2022 to combat high inflation, have contributed to soaring debt-servicing costs for the Treasury. As older, low-interest securities mature and are replaced with newer, higher-rate ones, these costs continue to rise. In the first nine months of the 2025 fiscal year, interest costs totalled $US921 billion, a 6 per cent increase from the previous year.
