President Trump thinks ‘certain levels’ of inflation could take care of the $40 trillion national debt. 

“You know, inflation. Certain levels of inflation will also pay off that debt very rapidly. Very rapidly,” he told TIME in an interview published Thursday, after the outlet pointed out has grown by about $11 trillion over his five years in office. In response, Trump first blamed Joe Biden, then the Fed, then hinted at a plan he wouldn’t share.

“I know I’m the best in the world,” Trump said. “The best – I don’t want to tell you what those means are, but you can pay off the debt through other means. But the one thing that you can do is pay it off through growth, and we’ve never had growth like this.”

Later he circled back, saying “the growth is going to pay off the debt” and that the Fed’s hikes were “hurting our country more than inflation is hurting our country.”

He didn’t say what level of inflation he had in mind, or whether he wants the Fed to tolerate more of it. Earlier in the same interview, though, he blamed Biden for “the biggest inflation in history” and said he “inherited the greatest inflation in history,” adding that “the only thing I have to get down now is the gas.”

Headline CPI rose 3.4% in the 12 months through August, with core at 2.4%, according to the BLS. On Sept. 16 the Fed raised rates for the first time since July 2023 – a unanimous quarter-point hike to 3.75%-4% that included Trump’s own pick for chair, Kevin Warsh – and penciled in another before year-end. Trump told TIME he “probably would have voted against the board” if he were Warsh, and has called for rates of 1% “or less.”

On Thursday, the day TIME published the interview, the 10-year Treasury yield touched 5.34%, its highest since 2002. It closed at 5.24%.

He’s Floated This Before

None of this is new for the self-described “king of debt.” In May 2016 he told CNBC the US could buy back its own bonds at a discount if rates went up. That was widely read as a default threat, so a few days later he went on CNN to walk it back. “You never have to default because you print the money, I hate to tell you, OK?” he said.

A month before that, he told the Washington Post he could wipe out what was then a $19 trillion debt “over a period of eight years” – a debt that has since more than doubled.

Buybacks are back, too. After the debt crossed $40 trillion and long-dated yields kept climbing, Treasury Secretary Scott Bessent tripled the cap on the first expanded buyback to $6 billion. As we noted at the time, yields surged anyway, since $6 billion barely registers against more than $2 trillion in gross issuance a year.

Bessent, for his part, prefers to talk about growth. In June 2025 he told CBS’s Margaret Brennan that “everything has been alarmist” on inflation and that the US would never default. And the day after Treasury reported the $40 trillion milestone, he went on CNBC to say there was “nothing magic” about the number and “we can grow our way out of that.”

The Part He Left Out

Last year we ran a piece arguing Bessent was effectively putting the national debt on an adjustable-rate mortgage by leaning on floating-rate financing, which also projected the debt would top $40 trillion by the end of fiscal 2026 – it got there in mid-August, about six weeks ahead of schedule.

Back in April 2025, Bloomberg’s Simon White made the case that higher inflation and a weaker dollar – where US policy seemed to be headed – were consistent with a falling debt burden. But he warned that unlike Britain’s post-WWII “beautiful deleveraging,” erratic policymaking could wreck trust in the dollar system, spark capital flight and end up adding to the debt.

Nick Giambruno spelled out the mechanics in July: financial repression, where the government keeps interest rates below inflation and the difference quietly moves wealth from savers to the Treasury. With 9% inflation and 4% rates, he noted, that’s a 5% transfer every year, and it compounds.

It has worked before. A 2011 BIS paper estimated negative real rates wiped out debt worth 2-3% of GDP a year in the US and UK between the late 1940s and the 1970s. But that was under Bretton Woods, with interest-rate caps, captive domestic buyers and capital controls – and the paper found financial repression works best “when accompanied by a steady dose of inflation.”

The catch is that it only works if the Treasury can borrow below the inflation rate. Right now it can’t: the 10-year yields nearly two points more than headline CPI, interest on the debt already runs over $1 trillion a year, and everything that matures gets rolled at today’s rates.

Getting real yields back below zero would take a Fed willing to cut into rising prices – the 1% “or less” Trump keeps asking for – or something like the rate caps and captive buyers of the 1940s. Trump didn’t say whether either one is among the “other means” he wouldn’t name.

Elected officials in helmets and yellow jackets gathered in New Jersey on Monday for the ceremonial launch of a massive boring machine that in days will begin drilling through the solid rock of the Palisades Cliffs in New Jersey, the initial phase of the Hudson Tunnel Project from New Jersey to New York Penn Station.

The new tunnel is just one part of a massive infrastructure project designed to ease the congestion of trains traveling in and out of New York City.

The existing tunnel was built in 1910.

The project will add two tunnels under the Hudson River for Amtrak and NJ Transit trains, which transport hundreds of thousands of commuters daily between New York and New Jersey. Its estimated cost is $16 billion, and completion is projected for 2035.

Under President Joe Biden, the Department of Transportation authorized $11 billion in grants and financing for the Hudson Tunnel portion of the project.

In October 2025, White House Office of Management and Budget Director Russell Vought announced it was freezing federal funding for the project over “unconstitutional DEI principles.”

But, as Nicholas Zifcak reports for The Epoch Times, New York and New Jersey sued the federal government, which was forced to reinstate funding on June 29 after U.S. District Judge Jeannette Vargas ruled Vought’s move unlawful. The federal government initially appealed, but on Sept. 17 the Department of Transportation dropped the appeal.

“Did they try to stop us in two thousand different ways? Did they try to put a log in our path, whether it was from Washington, New York, New Jersey, did we say … we are building this tunnel?” said Sen. Chuck Schumer, speaking in North Bergen, New Jersey, at the drilling launch.

The Hudson Tunnel Project is part of the Northeast corridor modernization being implemented by the bi-state Gateway Development Commission. It is just one of 10 projects intended to upgrade the rail lines from Newark, New Jersey, to New York Penn Station.

The Vargas ruling allowed the Hudson Tunnel Project to move to the next phase: Two boring machines will begin drilling through one mile of hard rock under the Palisades Cliffs in New Jersey. The first phase is expected to be completed within one year, then the next phase of drilling under the river will begin.

A main part of the Hudson Tunnel Project is revamping the North River Tunnel.

The existing two-track North River Tunnel serving Amtrak and NJ Transit is one of the main reasons for delays in and out of Penn Station for hundreds of thousands of daily passengers.

The North River Tunnel will be updated so that once complete there will be four rail lines in and out of Penn Station.

Update(1233ET): On Friday there are reports of another foreign tanker which has been struck and damaged in the Strait of Hormuz. Several similar drone attacks have occurred this week, and over the last few days – however unlike with prior attacks these latest are not being heavily featured in the media, and have also made surprising little impact on oil prices.

New UKMTO alert: Another tanker struck and damaged.

6th alert in last couple of days pic.twitter.com/CTMHttKNET

— Chris Shipping 🚢🚢 (@christankerfund) October 2, 2026

*  *  *

The US has deployed two additional Patriot missile batteries to Saudi Arabia and Qatar to protect energy infrastructure from aerial threats, according to a new report, reinforcing the urgent need to defend allied energy infrastructure ahead of potential renewed strikes on Iran. The report came before Thursday’s news that the Department of War is sending a third aircraft carrier strike group and additional Marine Corps ships to the region.

Axios reported late Thursday that one Patriot battery was sent last month to protect a key Saudi oil facility, while another was deployed to defend a natural gas plant in Qatar.

“The U.S. military transferred batteries and interceptors to the Middle East from other regional commands, raising concerns about readiness in other parts of the world,” the report said.

Trump told reporters yesterday that he was considering renewing a bombing campaign in the coming weeks. “Now I have to make a decision: either Iran signs the deal, or it won’t exist any longer,” he warned.

The urgent need for two more Patriot batteries in the region, designed to intercept aircraft, cruise missiles, certain ballistic missiles, and one-way attack drones, comes as Iran and proxy forces have hit critical energy infrastructure in Saudi Arabia and Qatar.

The latest attack on Saudi infrastructure came last month, when Iranian proxies hit the critical East-West pipeline, rendering it inoperable for weeks. Flows were restored only last week. Meanwhile, the latest Goldman data shows Hormuz crude flows have returned to pre-war levels as Tehran’s grip on the critical maritime chokepoint erodes.

Also overnight, a report said the DoW is preparing to send a third aircraft carrier strike group and additional Marine Corps ships to the Middle East, adding 9,000 to 10,000 more troops to the region. That news sent Brent crude futures to nearly $104 a barrel overnight, but the oil benchmark slipped below $100 as trading moved through Asia and Europe and into the early US session.

Authored by Aaron Gifford via The Epoch Times,

The University of California – Los Angeles (UCLA) School of Law allegedly denied admission to whites and Asians in favor of lower-performing black and Hispanic applicants, the Department of Justice announced Thursday.

Under federal Civil Rights Laws and a 2023 U.S. Supreme Court decision that ruled against affirmative action practices in university admissions, the public institution could lose federal funding if it doesn’t take corrective actions, Assistant Attorney General Harmeet K. Dhillon said in an Oct. 1 news release.

“Like many of its peer institutions, UCLA Law School runs a two-tiered admissions system whose academic bar for acceptance shifts up or down depending on the color of your skin,” she said. “The use of race as a thumb on the scale that helps or disadvantages any student is illegal. The Department will continue to enforce equal treatment under the law everywhere – including in our nation’s law schools.”

The Department of Justice (DOJ) reviewed student application materials for the incoming classes of 2023, 2024, and 2025, which included personal statements and essay prompts that allegedly are designed to “elicit information about race.”

Additionally, UCLA Law admissions staff allegedly instructed prospective students how to reveal their race in those sections of the application. This happened during race-based recruitment events, such as the Diversity Admissions Open House, Dhillon said.

Investigators also said they found that the university rejected white and Asian applicants who had the same LSAT scores as admitted black and Hispanic candidates. For 2024 and 2025 combined, half of the admitted black applicants had LSAT scores that were at or below 90 percent of the admitted white applicants, according to the news release.

The DOJ also reviewed internal university documents that Dhillon said showed intent to discriminate. This includes a statement allegedly from an assistant dean: “We are proud of the fact that 58 percent of this year’s incoming class are students of color.”

Another document from an assistant dean of admissions allegedly said, “If information about your ethnic/racial background would be helpful for law schools to gain a better sense of who you are, include it.”

Dhillon said in a letter to UCLA officials disclosing the findings of her investigation that the University of California higher education system doubled down on its commitment to affirmative action practices after the 2023 Supreme Court decision, issuing a memo from the president’s office that read, “student diversity remains a top priority for the University of California.”

The DOJ examined seven years of UCLA Law applicant data, from 2019 to 2025, and found that the university did not “meaningfully change its admissions practices” in response to the Supreme Court decisions.

The federal agency recently announced similar investigative findings at UCLA Medical School, UC David Medical School, UC San Diego Medical School, George Washington University Medical School, Yale University Medical School, Duke University Law School, and UC Berkeley Law School.

Dhillon said her agency will engage in settlement negotiations with UCLA to bring the university’s admissions practices into compliance. If those efforts fail, the DOJ will file a lawsuit.

UCLA Law School issued a statement on Oct. 1, maintaining that its admissions practices are not unlawful or discriminatory.

“UCLA School of Law is committed to making admissions decisions in compliance with all applicable laws, including the California Constitution and Proposition 209, federal statutes, and the U.S. Constitution,” the statement said. “Students are admitted through a comprehensive, merit-based review process that considers each applicant’s achievements and experiences. We are confident in our process.”

With nonfarm payrolls printing below even the weakest analyst’s forecast, the market’s reaction has been uniformly dovish with rate-hike odds plummeting, treasury yields tumbling, stocks soaring, dollar down and gold and crypto higher.

The biggest impact of the piss-poor payrolls print was the market basically pricing out a hike in October…

With less than one total hike (22.5bps) now priced in for 2026 (and only 2 more hikes in 2027)…

Yields are all down, led by the short-end…

Which makes sense given that heading into the print (as we previewed perfectly), Goldman’s Brian Garrett says the bank’s CTA model shows managers “extremely short global bonds (~$390bn notional).” US 10Ys are at 99% of max short and 30Ys at 100%. With systematic funds that short, a weak print, or even a 4.2% unemployment rate, could set off a massive short squeeze in bonds. 

Stocks spiked on the report, led by the most rate-sensitive names (Small Caps) and longest duration tech names…

And gold is rising (as the dollar dips)…

Tom Simons, chief US economist at Jefferies, said this payroll number “should be the nail in the coffin” for an October hike.

“We had been expecting that they would continue with successive 25 bp moves, but it now looks more likely that the policymakers emphasizing that they have some more time before another hike is needed will remain patient.”

Finally, Christopher Hodge at Natixis doesn’t think these numbers move the Fed debate by a lot: “This data won’t shift the broader decision making calculus for the Fed as inflation remains the supreme concern, but with wages lower and the jobs picture a bit less rosy, it certainly decreases the urgency to hike in October.“

But with Jefferson and WIlliams already in the dovish/hold/wait-and-see camp, and the proximity to the Midterms, it seems October’s hike is well and trul off the table (after topping 75% odds just a week or so ago).

In our jobs preview post, we told readers to “beware a bond squeeze as august seasonals reverse” and boy were we right: yields are tumbling from 5.22% to 5.16%, a new weekly low, as all those record TSY shorts get bigly squeezed following what was a big miss in the September jobs print which tumbled from a downward revised August (as we said it would be) 133K vs 162K originally to just 29K.

It wasn’t just August that was revised down by 29,000, from +162,000 to +133,000: July was also revised down by 31,000, from +21,000 to  -10,000.  This means that the original negative print of -23K, and which was revised up to 31K last month, is now once again negative and that had the Fed known this, it most likely would not have hiked last month. With  these revisions, employment in July and August combined is 60,000 lower than previously reported. 

More notably, the 29K job print was below all estimates, which is amusing since August was originally above all estimates, but has since been revised sharply lower and just in line.

While the headline payrolls print was a big miss, the unemployment rate actually rose to 4.2%, from 4.1%, and above estimates of an unchanged print, as the number of unemployed workers rose to 7.109MM from 7.031MM, up 78K, while the labor force rose by 485K to 170.262MM. Among the major worker groups, the unemployment rate for people who are Black (7.0 percent) jumped in September. The jobless rates for adult men (3.9 percent), adult women (3.6 percent),  teenagers (14.5 percent), and people who are White (3.6 percent), Asian (2.9 percent), or Hispanic  (4.7 percent) showed little change over the month.

As for the specific reason why the unemp rate rose despite the drop in payrolls, that’s because the Household Survey showed a 406K surge in the number of employed workers, the second highest since Jan 2025 (only August’s 569K was higher)…

… which pushed the total number of employed workers to 163.152MM, the highest since January.

It’s also why the participation rate has jumped sharply in the past two months after dropping to a 5 year low in July.

There was some more relief on the inflation front as average hourly earnings rose just 0.1%, below the 0.3% expected, which pulled the annual wage growth to just 3.0%, down from 3.1% and below estimates of an unchanged print.In September, average hourly earnings of private-sector production and  nonsupervisory employees rose by 7 cents, or 0.2 percent, to $32.60. 

The average workweek for all employees on private nonfarm payrolls remained at 34.4 hours in September. In manufacturing, the average workweek was unchanged at 40.6 hours, and overtime held at  3.0 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls remained at 33.8 hours. 

Taking a closer look at the numbers in the report, we find the following:

• The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged  at 1.9 million in September. The long-term unemployed accounted for 27.1 percent of all unemployed  people. 
• Both the labor force participation rate, at 61.8 percent, and the employment-population ratio, at  59.2 percent, changed little in September. These measures showed little net change since January.  
• The number of people employed part time for economic reasons changed little at 4.5 million in  September. These individuals would have preferred full-time employment but were working part time  because their hours had been reduced or they were unable to find full-time jobs. 
• In September, the number of people not in the labor force who currently want a job changed little  at 5.8 million. These individuals were not counted as unemployed because they were not actively  looking for work during the 4 weeks preceding the survey or were unavailable to take a job. 
• Among those not in the labor force who wanted a job, the number of people marginally attached to the labor force decreased by 236,000 to 1.5 million in September. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months but had not looked for work in the 4 weeks preceding the survey. The number of discouraged workers, a subset of the marginally attached who believed that no jobs were available for them, changed little over the  month at 414,000. 

Next, looking at the actual industries in today’s report, we find the following: 

• Health care employment continued its upward trend in September (+17,000), but at a slower pace than the average monthly gain over the prior 12 months (+33,000). In September, employment continued to trend up in ambulatory health care services (+13,000) and in hospitals (+12,000), while nursing and  residential care facilities lost jobs (-9,000).
• Employment in construction changed little in September (+11,000). The industry had added an average of 10,000 jobs per month over the prior 12 months. In September, employment in nonresidential  specialty trade contractors continued to trend up (+12,000).
• Manufacturing employment was little changed in September (+9,000) but is up by 72,000 since a recent low in December 2025. Over the month, employment increased in plastics and rubber products manufacturing (+5,000) and in machinery manufacturing (+5,000).
• In September, financial activities employment was little changed (-7,000). Employment in financial activities is down by 129,000 since a recent peak in May 2025, with most of the job loss in insurance carriers and related activities (-90,000).
• Employment also showed little change over the month in other major industries, including mining, quarrying, and oil and gas extraction; wholesale trade; retail trade; transportation and warehousing; information; professional and business services; social assistance; leisure and  hospitality; other services; and government.

And visually:

There were no major surprises below the surface, as part-time jobs rose by 205K to 28.746MM while full-time jobs rose by 88K to 134.376MM.

Finally, looking at the breakdown in native vs foreign-born, there were no surprises here too, as the number of US born workers rose by 298K while foreign-born workers surged by 473K, on other words, back to the old normal.

Overall, this was a mixed report, with the Household Survey painting a much stronger picture than Establishment (hence unemployment rate higher). But since the market – and by extension the Fed – are mostly swayed by the Payrolls part of the equation, it is not surprising that the market reaction today is one where bonds are getting massively short squeezed after the payroll print which missed all estimates.

If confirmed, Bloomberg’s report that France proposed that other European countries and International Energy Agency members release 100 million barrels of diesel and crude oil from emergency stockpiles would signal that Brussels is caving to President Trump’s demand. 

Europe’s dependence on US fuel supplies gives the Trump administration major bargaining power as the continent approaches winter with below-average energy supplies and exposure to higher costs if a cold snap or further supply disruptions materialize.

The report has not been officially confirmed and is based on sources, but it says European countries are considering releasing 50 million barrels of diesel, with International Energy Agency members making another 50 million barrels of crude available.

One day earlier, Reuters reported that the Trump administration asked Germany and France to release emergency diesel inventories to help create a buffer against the supply squeeze in the industrial fuel or face a potential US diesel export ban.

The art of wheeling and dealing is all about leverage, and it appears the US threat of a diesel export ban might be enough to make Europeans come to their senses and dump emergency fuel and crude supplies onto the market.

Bloomberg also mentioned that French President Emmanuel Macron and President Trump spoke overnight and that G7 leaders are set to convene around 0830 ET.

“It is in Europe’s best interest to work with the United States as we pursue multiple pathways to boost the supply of refined products and lower costs for consumers,” one source, a US official, told Reuters on Thursday.