Trump just soft-launched higher inflation as the new solution for rebalancing the $40 trillion U.S. national debt

It was an outcome that droves of economists warned was coming: higher inflation being tolerated—consciously or otherwise—to bring down the value of America's $40 trillion national debt. President Trump and his second administration haven't been short of ideas on how to rebalance the national debt, which now demands $2 trillion in interest payments a year. The White House suggested everything from tariffs to visa revenues might be directed toward the debt accumulated by both Republican and Democrat governments. The key metric is the U.S. debt-to-GDP ratio, currently at more than 120%. When that balance tips too far, it signals that a nation is borrowing beyond its economic growth, and higher risk premiums become attached to lending as a result.

Raising revenues through tariffs, for example, would have addressed the balance by lowering debt. Economic growth could also impact the ratio from the other side. Trump and key members of his team, such as Treasury Secretary Scott Bessent, have suggested this is now the path forward to allay any debt concerns.

It was a point Trump touched on in a recent interview with Time . In the past, he said, lower rates made borrowing cheaper. He added that in the current period, where the Fed has recently increased rates, "you can do it through other means. I know I'm the best in the world. The best—I don't want to tell you what those means are, but you can pay off the debt through other means."

The president added: "But the one thing that you can do is pay it off through growth, and we've never had growth like this. Look at the numbers. Look at the poverty numbers. The lowest we've had in … ever. Look at the murder numbers. Look at the crime numbers. We have the best crime numbers we've ever had in history."

Trump also said something that will prick the ears of economists: "You know, inflation, certain levels of inflation, will also pay off that debt very rapidly. Very rapidly."

That option may be politically unpopular with voters who are already concerned about affordability. But above-target inflation is the outcome many analysts saw coming.

In its simplest form, above-target inflation would erode the value of existing debt, allowing the government to repurchase or refinance at relatively cheaper rates.

Last year, J.P. Morgan said: "We could see a less straightforward path to reduce the U.S. government's debt load. Policymakers could erode Fed independence and effectively inflate the debt away by driving a stronger nominal growth environment characterized by higher inflation and, over the near term at least, lower real interest rates."