Trump cost from Fed rate hikes may already top $5 million a year

US President Donald Trump has repeatedly attacked Federal Reserve Chairman Jerome Powell’s interest-rate increases as a drag on US economic growth. They’re also cutting into his own fortune.

Every time the Fed raises rates, Trump’s payments on some $340 million (Dh1,248 million) in variable-rate loans go up. Since his January 2017 inauguration, the Fed’s steady rate hikes may have added a cumulative $5.1 million a year to his debt service costs, according to a Bloomberg News analysis of the president’s financial disclosures and property records.

If Federal Reserve officials raise interest rates by another quarter percentage point when they meet on December 18-19, as investors expect, make that $6 million per year.

That might not seem like much to a billionaire. But the president is renowned for his preoccupation with preserving his wealth. He once cashed a 13-cent check and, according to a lawsuit by the New York attorney general, has used money from his personal charity to settle business disputes. Trump has denied misusing charity funds.

Trump’s interest payments are tied to variable-rate mortgages he took out from Deutsche Bank between 2012 and 2015 to develop a golf course outside Miami and hotels in Washington and Chicago. At the time, the Fed’s rates were near zero, and Trump paid a small margin above that.

Prime rate

The Fed has lifted its benchmark short-term rate six times since Trump’s inauguration, actions that have pushed up the rate banks charge their best customers to 5.25 per cent from 3.75 per cent. For loans indexed to the prime rate, the moves would have pushed Trump’s annual interest payments to about $16.3 million from $11.2 million over the same time period — about $850,000 for each quarter-point increase.

Press representatives for the Trump Organisation and White House didn’t respond to requests for comment.

Trump has been increasingly strident in criticising Powell since July, arguing the central bank’s policies are threatening an economic boom that he sees as a validation of his push to cut taxes and slash regulations.

By October, shortly after the Fed’s most recent rate increase, he said the central bank was “going loco” and identified it as his “biggest threat.” Last month, Trump told the Washington Post he was “not even a little bit happy with my selection of Jay,” whom Trump chose to be Fed chairman. This week, he urged Powell against the expected December increase, telling Reuters the central bank “would be foolish” to proceed.

Trump’s statements have been widely criticised for breaking with decades of tradition for presidents to avoid public comment on the Fed’s actions in order to respect the central bank’s independence. Former Fed vice chairs Alice Rivlin and Alan Blinder described Trump’s comments as highly unusual.

Before he was president, Trump regularly denounced the Fed for keeping rates low for too long. “Record inflation,” for example, was always around the corner. But his apparent change of heart amplifies worries that his decision to maintain his debt-laden business empire while in office may influence his performance as president.

Loan terms

Trump’s interest payments are pegged to either the prime rate or one of seven tenors of the London interbank offered rate, commonly known as Libor. Those rates are heavily influenced by the federal funds rate set by the US central bank. The prime rate, and the one- and three-month Libor have all increased by about 1.5 to 2 percentage points since January 2017, nearly matching the 1.5 percentage point increase in the federal funds rate set by the Fed.

The loan documents don’t specify whether Trump and Deutsche Bank have elected to use Libor or the prime rate when calculating Trump’s interest payments. Bloomberg’s analysis is based on how much Trump borrowed, rather than how much he presently owes. Trump has to make balloon payments when the loans come due in 2023 and 2024, according to property records and his financial disclosure.

Trump’s privately held company doesn’t disclose its performance, but there are signs business has slipped since he took office. An ambitious plan to launch new hotels in dozens of cities faltered, and Trump-branded buildings in Manhattan, Toronto and Panama City have dropped the president’s name.

Trump’s net worth has fallen some 7 per cent over the past two years to $2.8 billion, according to figures compiled by the Bloomberg Billionaires Index. He has at least $57.2 million in cash, according to his most recent financial disclosure.