President Trump says interest rates set by the Federal Reserve are too high. They’re less than a quarter of what they were in 1981.
President Trump has been bellowing for months now (years, actually) that interest rates in America are oppressively high. He has screamed at the Federal Reserve, which manages rates country-wide by charging and paying interest to banks, to slash the U.S. economy’s most important price. Trump claims that doing so would deliver a raft of wonders: alleviating fiscal strain, juicing the stock market, restoring business confidence, aiding homebuyers, making every day Christmas, et cetera. It seems the only thing standing between us and Scrooge McDuck’s Money Bin is those nefarious, uber-high interest rates. Yet the Fed stubbornly refuses to give in.
One curious point stands in the way of Trump’s narrative: Interest rates are not high by any historical standard. They may certainly feel high to many Americans who are taking out mortgages and business loans at pricier rates than they could a few years ago, but that perception is due to a lack of perspective. Extend your scope back 70 years, since the Fed began keeping track of the rate at which banks lend to one another, and you’ll see the reality: Current interest rates are slightly lower than the historical average. The near-zero percent rates people experienced after the 2008 financial crisis and the Covid-19 pandemic were aberrations. And the highest interest rates in living memory were about four times higher than they are today.
Most Americans today do not remember looking at a home loan with a rate higher than 6 percent. Some even took out mortgages at rates of 2 or 3 percent during the pandemic. Now, the average mortgage rate is 6.58 percent. Younger people have become accustomed to easy money, so it’s understandable that they’re upset once it has been cut off. But older generations do not have the same luxury of ignorance.
The median age of an American in 2025 is about 39 years old. Most Americans, therefore, were not alive during — let alone remember — the year 1981. That was the first year of Ronald Reagan’s administration, when the president gave Federal Reserve chairman Paul Volcker free rein to ratchet up interest rates to defeat the pinching inflation of the 1970s. That was a tall order, as the inflation rate the previous year had reached 13.5 percent. Temporary financial pain would have to be substituted for permanent financial pain. In the summer of 1981, interest rates reached a record high of 19.1 percent. Forty-four years later, they stand at 4.33 percent — less than a quarter as high.
A searing jolt rippled throughout the economy as the Fed surged interest rates into the high double digits. Thirty-year mortgage rates hit a record high of 18.63 percent. They would not fall below 10 percent until five years later. Rates on new auto loans spiked to 17.36 percent, then stayed above 10 percent for a decade afterward. Today, the average car loan rate is 7.63 percent. The yield on the ten-year U.S. Treasury bond, now bemoaned by Trump at 4.3 percent, eclipsed 15.8 percent in 1981. Millions of real people had to borrow at such rates to finance major family purchases. And we honestly believe that interest rates are too high in 2025.
Businesses in the 1980s, facing exorbitant borrowing costs for themselves and their customers, were furious with the ultra-high interest rates. Under Volcker’s tenure as chairman, home builders mailed 2×4 pieces of lumber to the Fed’s offices. Car dealers followed suit, mailing in the keys of their unsold automobiles. Farmers drove their tractors to Washington, D.C., clogging the capital’s streets and blockading the Federal Reserve. And they were justified in their anger. By the end of the 1980s, 300,000 farmers had defaulted on their loans, with many losing their homes and land. But persistent inflation needed to be tamed, and the Fed jacking up interest rates was the only way to do it. By 1986, the inflation rate dipped below 2 percent for the first time in twenty years.
In 2022, Americans suffered the worst inflation since the early 1980s, at a year-over-year high of 8 percent. We should consider ourselves lucky that the Federal Reserve only had to increase rates to 5.33 percent in response, and it has since cut them by a full percentage point. Yet many people believe that rates are still terribly high, because they lack historical perspective. As someone who lived through the early 1980s, though, Donald Trump ought to know better.