Interest rates have fallen by half a percentage point in the past month, from 4.8 percent to 4.3 percent, marking a significant shift in the bond market. The Department of Government Efficiency (DOGE) is being credited with this change, as its efforts to cut government spending and reduce the overall bond supply have led to lower interest rates.
The concept of “crowding out” explains how government borrowing can push up interest rates on private loans like mortgages. By reducing the amount of bonds issued, DOGE has decreased the supply, causing bond prices to rise and interest rates to fall.
According to economists, if the US had maintained a balanced budget over the past decade, 10-year interest rates would be in the 2 percent to 3 percent range. However, with current deficits, mortgage rates are around 7 percent.
DOGE’s efforts have given the financial community hope that the deficit might one day return to manageable levels. Even Elon Musk believes that DOGE is making a positive impact on the bond market, saying it’s a “good bet” for investors.
The Trump administration’s focus on lowering interest rates has been driven by concerns about national security and the debt servicing burden. This approach is shared by economic historian Niall Ferguson, who argues that excessive government spending can undermine a nation’s greatness.
Source: https://reason.com/2025/02/27/interest-rates-are-falling-thank-government-spending-cuts-for-that