Why Americans are feeling the squeeze despite Trump’s booming economy claim

Donald Trump’s economic agenda is facing fresh pressure, with US government debt hitting USD 40 trillion, mortgage rates climbing and fuel costs surging as the Iran war disrupts energy supplies and unsettles financial markets.

According to the Financial Times, the strain has raised questions about whether Trump can deliver on promises to lower prices and improve America’s public finances, particularly as the midterm elections draw closer.

Investors pushed yields on long-term US government debt to their highest level in 19 years this week, reflecting growing concern over the scale of federal borrowing and the inflationary impact of the conflict.

Treasury Secretary Scott Bessent moved quickly to calm markets, announcing a programme aimed at at least doubling purchases of long-term debt. He also said the administration would soon unveil further measures to address the budget deficit.

The intervention, however, did little to bring down Treasury yields, while the dollar weakened.

Trump has continued to insist that the economy is booming, pointing to record highs in the stock market. But the turmoil in bond markets and rising costs for households are creating a more difficult backdrop for the administration.

A USD 40 trillion debt problem

The federal government’s debt reached a record USD 40 trillion this week as borrowing continued to rise rapidly.

The US budget deficit narrowed only slightly in the 2025 fiscal year, falling to 5.8 per cent of gross domestic product from 6.4 per cent a year earlier.

Trump’s tax cuts are expected to add further pressure to government finances in the years ahead, even after reductions in spending on programmes including Medicaid and food assistance.

Bessent has previously said he wanted to bring the deficit down to 3 per cent of GDP by the end of Trump’s second term. He now argues there is a strong chance that the deficit has already peaked and says stronger economic growth and tariff revenue could improve government finances.

But reducing the deficit could require politically difficult decisions, particularly if further spending cuts are needed.

Fuel prices climb sharply

The war has also dealt a blow to Trump’s pledge to lower energy costs.

Petrol prices have risen by about 40 per cent since the conflict began, reaching USD 4.11 a gallon on Friday. Diesel prices have climbed by a similar margin to USD 5.58 a gallon.

Higher diesel costs could feed through the wider economy because the fuel is central to moving goods across the country.

Disruption to energy supplies in the Middle East has overshadowed the increase in US oil production that Trump had promoted as a way to bring down prices.

The US remains the world’s largest oil producer, but output growth this year is expected to be relatively modest. Meanwhile, around 20 million barrels a day of flows through the Strait of Hormuz have been shut in during the war.

Mortgage pressure returns

The housing market is also feeling the effects of higher borrowing costs.

The average rate on a 30-year mortgage rose to 6.65 per cent this week, compared with 5.98 per cent before the war began in late February.

That increase adds to the affordability problems already facing prospective homebuyers and puts more pressure on the White House to find ways to bring rates down.

Inflation has eased from its recent peak but remains a concern. Annual consumer price inflation reached 4.2 per cent in May, a three-year high, before falling to 3.4 per cent in July.

Growth remains below expectations

The economy is still expanding, supported by consumer spending and heavy investment in AI infrastructure by major technology companies.

But growth remains below the ambitious forecasts made by administration officials. GDP grew by 2.1 per cent last year and expanded at an annualised rate of 1.5 per cent in the second quarter of 2026.

With debt at record levels, borrowing costs rising and households paying more for fuel and mortgages, Trump faces an increasingly difficult task: convincing voters that the economy is moving in the right direction while finding a way to bring America’s finances under control.