Can Lower Fed Rates Help Fix the Government’s Debt Problem?

Summary

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WSJ What’s News — PM Edition (September 19, 2025)

Episode Overview

This episode covers key business and political developments shaping markets, with a deep dive into:

• The new TikTok deal outlined between the US and China
• Market updates and government funding drama in Congress
• The implications of the latest Federal Reserve interest rate cut on US government debt payments
• The resurgence of hard drives amid the AI boom

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Key Discussion Points & Insights

1. US–China TikTok Deal Update

[01:18–04:16]

• Context: President Trump and President Xi have approved a preliminary agreement allowing a consortium of U.S. investors, including Oracle and Silverlake, to take control of TikTok’s U.S. operations.
• Ownership structure:
  • US consortium: ~50%
  • Existing investors: ~30%
  • ByteDance (China): <20%
• Tech & Security: The new entity will use algorithms “reengineered for the U.S. market” but licensed from ByteDance.
• Status: The agreement is preliminary—many details, especially legal and technical compliance, are yet to be finalized.
• Quote:
  • “Some people thought that the deal was totally done. In reality, it seems more like the preliminary agreement is done for the structure and what the deal will look like and generally who's involved.” – Amrith Ramkumar [02:05]
• Timing: Unclear—ongoing discussions expected at the upcoming APEC summit.

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2. Market Summary & Government Funding Standoff

[04:22–06:47]

• Market Moves:

  • Nasdaq: +0.7% (led today’s gains)
  • S&P 500: +0.5%
  • Dow: +0.4%
  • Weekly: S&P +1.2%, Dow +1.1%, Nasdaq +2.2%

• Congressional Deadlock:

  • Senate Democrats blocked a GOP stopgap measure (44–48 vote). They are demanding over $1 trillion in healthcare subsidies, including ACA extensions.
  • Government shutdown looms as leaders revisit negotiations.
  • “The move sets up a down to the wire negotiation over how to avoid a government shutdown in two weeks.” – Alex Osola [05:12]

• Other Headlines:

  • White House seeks approval for $6 billion in arms sales to Israel despite regional controversy.
  • Judge strikes down President Trump’s $15 billion defamation suit against the New York Times.

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3. Feature — Can Lower Fed Rates Fix Government’s Debt Problem?

[07:16–09:26]

• Key Issue: The U.S. now pays about $1 trillion annually in interest on the national debt.

• Will the Fed Rate Cut Help?

  • Short answer: Not much, and not quickly.
  • Reason: Most government debt is long-term, insulated from immediate changes in short-term rates.
  • “When the Fed lowers interest rates, it doesn’t necessarily affect the rates on long-term debt. ... When investors are thinking, oh, we want to lend money to the US for the long term, they're looking at factors that go well beyond what the federal funds rate is right now.” – Richard Rubin [07:37 & 08:10]
  • Short-term bills may see a quick impact, but 80% of debt is long-term.

• Other Options for Lowering Interest Cost:

  • Shift issuance toward short-term debt when rates are low
  • Rebalance the 80/20 long-term to short-term ratio
  • But these are marginal changes given the $30 trillion debt load.

• Quote:

  • “The biggest thing that’s going to affect the interest costs in the long run are how much debt the US continues to rack up.” – Richard Rubin [08:29]

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4. The AI Boom’s Surprising Winner: Hard Drives

[09:29–11:21]

• Context: Western Digital and Seagate — the two largest hard drive makers — posted ~30% revenue growth in their latest quarters.

• Drivers:

  • Demand for storage from generative AI applications, which consume and produce large datasets.
  • Legacy spinning disks (HDDs) remain vital alongside flash storage, thanks to the sheer volume required for AI workloads.

• Investor Reaction:

  • Stocks have nearly doubled in a year; companies are still relatively cheap by P/E ratio standards.
  • “From an investor perspective, these companies are still pretty attractively valued despite their recent uptick in price and their prospects as businesses going forward.” – Asa Fitch [10:50]

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Notable Quotes & Memorable Moments

• Amrith Ramkumar on TikTok Deal:
  “They are having to get creative to comply with the law and make everyone happy with the national security restrictions that they’re being fulfilled.” [03:10]
• Alex Osola on Congressional Stalemate:
  “Democrats are demanding more than $1 trillion in health care subsidies as the price of their support, including extending enhanced Affordable Care act subsidies and restoring cut Medicaid funds.” [04:47]
• Richard Rubin on Debt:
  “The kinds of changes we’re talking about here are really just on the edges.” [09:13]
• Asa Fitch on Hard Drives:
  “Those disks, those old school hard drives, still have a big place in the world and especially in the AI era.” [10:13]

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Timestamps for Key Segments

• TikTok Deal Explained: 01:18–04:16
• Markets & Government Funding Deadlock: 04:22–06:47
• Feature – Fed Rates & U.S. Debt: 07:16–09:26
• Spotlight – Hard Drives & AI Boom: 09:29–11:21

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This summary captures the core headlines, expert analysis, and market context offered in the episode, providing clear insights and speaker perspectives for those who missed the show.

Transcript

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[Alex Osola]

What'S in the TikTok deal that President Trump says he's reached with China? Plus, can a lower rate from the Fed help reduce the US Government's debt problem?

[Richard Rubin]

When investors are thinking, oh, we want to lend money to the US for the long term, they're looking at factors that go well beyond what the federal funds rate is right now and why.

[Alex Osola]

In the middle of an AI boom, good old hard drives are making a comeback. ALEX It's Friday, September 19th. I'm Alex Osola for the Wall Street Journal. This is the PM edition of what's news, the top headlines and business stories that move the world today. President Trump announced today that he and Chinese leader Xi Jinping approved an agreement for a group of investors to take control of TikTok's US operations. TikTok capping off months of tense negotiations that put the video sharing app at the center of trade talks between the two sides. WSJ Tech policy reporter Amrith Ramkumar is here now with more. Amrith, what details do we know about this deal?

[Amrith Ramkumar]

There aren't a ton of new details here. Some people thought that the deal was totally done. In reality, it seems more like the preliminary agreement is done for the structure and what the deal will look like and generally who's involved. So so what they're talking about is a consortium of predominantly US Investors, including cloud computing firm Oracle, private equity firm Silverlake and others. They would be roughly 50% owners of this new entity that would run TikTok in the US and the existing investors would own roughly 30%. And then TikTok's parent in China, ByteDance, its ownership stake would drop below 20%. Other big investment firms like Andreessen, Horowitz and Blackstone are no longer part of the group is our understanding. And then with the algorithms, it's a bit squishy and complicated, but generally the idea would be that this new entity would be using algorithms licensed using ByteDance's technology and they would still be expected to comply with US Security rules and all that sort of stuff.

[Alex Osola]

Does that satisfy the legal requirements that forced the sale in the first place?

[Amrith Ramkumar]

It's a complex situation. They would actually be using essentially new algorithms is the best way to think about it that were re engineered for the US market using technology licensed by ByteDance. They are having to get creative to comply with the law and make everyone happy with the national security restrictions that they're being fulfilled.

[Alex Osola]

What is the timing on a potentially finalized deal?

[Amrith Ramkumar]

Timing on finalizing everything is very unclear. It sounds like Trump and Xi are going to meet soon in the fall at the APEC summit and continue discussing broader trade issues. And even though there's this preliminary agreement finalized, it sounds like there will still be some nuances to flesh out.

[Alex Osola]

What has TikTok said about this?

[Amrith Ramkumar]

TikTok, like a lot of the other players in this agreement, is being very careful about what they say publicly. They put out a brief statement basically saying they thank both leaders and look forward to working to make sure they satisfy the law and can achieve a compromise that satisfies everyone.

[Alex Osola]

That was WSJ tech policy reporter Amrith Ramkumar. Thank you Amrith.

[Amrith Ramkumar]

Thanks for having me.

[Alex Osola]

Major US Indexes closed higher today. The Nasdaq led the gains adding about 0.7%. The S&P 500 was up about half a percent and the Dow rose about 0.4%. For the week, the S&P 500 added 1.2% while the Dow was 1.1% higher. The tech heavy Nasdaq rose 2.2%. Senate Democrats have blocked Republican stopgap measure to keep the government funded until late November. The vote in the Republican controlled Senate was 44 in favor and 48 against short of the 60 votes required. Democrats are demanding more than $1 trillion in health care subsidies as the price of their support, including extending enhanced Affordable Care act subsidies and restoring cut Medicaid funds. The GOP led House narrowly passed the measure earlier in the day and now party leaders will have to go back to the drawing board. The move sets up a down to the wire negotiation over how to avoid a government shutdown in two weeks. We're exclusively reporting that the Trump administration is seeking congressional approval to sell nearly $6 billion in weapons to Israel. That's according to people familiar with the request. The weapons likely wouldn't be delivered for two or three years. One of the people said. The administration is moving forward with the plan despite Israel's missile strike on Hamas in Qatar and intensifying offensive in Gaza City, which have drawn strong condemnation in Europe and in the region. The State Department and Israel's Defense Ministry declined to comment. The White House didn't respond to requests for comment. Today, a federal Judge struck President Trump's $15 billion defamation suit against the New York Times, characterizing the president's legal complaint as a vitriolic screed that violated basic court requirements for suing someone. The judge, whose order came four days after the president filed the complaint, gave Trump's lawyers 28 days to file a new version. A spokesperson for the New York Times welcomed the quick ruling. A lawyer for Trump didn't immediately respond to a request for comment. Coming up, Will the Fed's most recent rate cut reduce the US Government's interest payments for its national debt? The not so straightforward answer after the break.

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[Alex Osola]

The US government spends about $1 trillion every year on interest on its national debt. The Federal Reserve just lowered interest rates. That should lower the amount that the US Government pays, right? Turns out the answer isn't so simple. WSJ tax policy reporter Richard Rubin joins me now. Richard, how will this interest rate cut help or not with the federal debt?

[Richard Rubin]

Maybe a little bit. As you said, the interest on the debt is this huge expense, $1 trillion a year. But you have to look at how that's composed. The bulk of that is long term debt. And so when the Fed lowers interest rates, it doesn't necessarily affect the rates on long term debt. The other thing is that Treasury's interest rate that it pays on long term debt is just different from what the Fed's short term rates are. Short term rates can show up Relatively quickly in four week treasury bills, that kind of thing. But when investors are thinking, oh, we want to lend money to the US for the long term, they're looking at factors that go well beyond what the federal funds rate is right now.

[Alex Osola]

So what other options does the government have to lower the amount that it's paying in interest?

[Richard Rubin]

The biggest thing that's going to affect the interest costs in the long run are how much debt the US continues to rack up. Right. So we've got this persistent gap between spending and revenue. That's because we've cut taxes, increased spending on entitlements, done emergency borrowing for the pandemic, that kind of thing. And we're paying for that now and continuing to have those gaps. There are some things on the margins you could do. You could issue issue more short term debt when rates are lower. So right now about 80% of the US debt is in longer term things. Or when you see long term rates go down, you could Change that ratio, that 80, 20 and put even more in long term debt, locking in some lower rates. Even those changes aren't going to make all that much difference. The US has a $30 trillion roughly debt held by the public. And the kinds of changes we're talking about here are really just on the edges.

[Alex Osola]

That was WSJ reporter Richard Rubin. Thank you, Richard.

[Richard Rubin]

Thanks.

[Alex Osola]

In an AI boom that has made investor darlings of companies like Nvidia and OpenAI, the lowly hard drive is enjoying a resurgence that investors are only starting to reward. Hard drive makers Western Digital And Seagate, the two largest players in the industry, both reported around 30% higher revenue in their latest quarters. Growth that would have been unthinkable a few years ago. For more, I'm joined now by WSJ Heard on the street writer Asa Fitch. Asa, what's driving this growth?

[Asa Fitch]

Basically one thing. AI. You know, people are using AI a lot and it's consuming a lot of data, it's producing a lot of data and that data needs to go somewhere and it goes generally on hard drives. People in the past number of years have been shifting more to using flash drives or flash storage rather than these spinning disks that contain people's data. But those disks, those old school hard drives, still have a big place in the world and especially in the AI era.

[Alex Osola]

It sounds like investors are just now starting to get a little more interested in these hard drive companies. Does that reflect the prospect of their future?

[Asa Fitch]

Not fully. There are two big hard drive makers, Seagate and Western Digital. It's effectively a duopoly they have done very well in the past number of quarters. As you mentioned. In the latest quarter, they both saw revenues rise 30%. Their stocks have also around doubled in the past year or so. But if you look at how they're valued on a price to earnings basis, they're actually not incredibly expensive. These companies both trade at valuations well below what the NASDAQ average is. So from an investor perspective, these companies are still pretty attractively valued despite their recent uptick in price and their prospects as businesses going forward.

[Alex Osola]

That was WSJ heard on the street writer Asa Fitch. Thank you, Asa.

[Amrith Ramkumar]

Thank you.

[Alex Osola]

And that's what's news for this week. Tomorrow you can look out for our weekly markets wrap up. What's news in markets? Then on Sunday, we're bringing you an episode of Bold Names where co hosts Christopher Mims and Tim Higgins speak with IBM CEO Arvind Krishna about how IBM plans to compete against rivals in the quantum computing space space and how to ensure that it doesn't get there too early. That's in what's New Sunday. And we'll be back with our regular show on Monday morning. Today's show is produced by Pierre Bienname at Rodney Davis with supervising producer Michael Kosmides. Michael Lavalle wrote our theme music. Aisha El Musleam is our development producer. Jana Herron is our deputy production editor. Chris Insinsley is our deputy editor. And Falana Patterson is the Wall Street Journal's head of news audio. Alex I'm Alex Osola. Thanks for listening.

[Bull]

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[Alex Vrangos]

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[Asa Fitch]

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[Bull]

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[Alex Osola]

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[Amrith Ramkumar]

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[Alex Vrangos]

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