Congress
Debt cloud suddenly hangs over megabill talks
Republicans knew they’d have to overcome fierce internal divisions, thorny policy trade-offs and rock-solid Democratic resistance to pass their massive domestic policy bill.
They didn’t count on a Wall Street backlash, too.
A softening Treasury bond market and surprise downgrade Friday of U.S. creditworthiness are the latest forces weighing on the GOP megabill — an unmistakable nudge to lawmakers that investors are growing increasingly concerned about legislation that could pile trillions of dollars more onto an already staggering national debt.
That message is being seen as vindication by some Republicans who have long warned about the nation’s unsustainable fiscal trajectory and who have vowed to seek massive spending cuts as part of the pending legislation.
“If we don’t have a wake-up call now — all of us, Democrat, Republicans — I don’t know what it’s going to take,” said Rep. Ralph Norman (R-S.C.), one of a handful of conservative hard-liners who delayed a key House Budget Committee vote this weekend over spending concerns.
But many other Republicans appear fully prepared to brush off the warnings — including the downgrade of U.S. debt from Moody’s Ratings, which directly referenced the pending legislation: “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration.”
Trump’s National Economic Council director, Kevin Hassett, said in a Fox Business appearance Monday that the downgrade reflected former President Joe Biden’s fiscal policies and argued that the tax cuts in the megabill would position the U.S. for further growth. He also cited increasing tariff revenue that “should affect the credit rating in the end if you’ve got all this extra tax revenue coming in.”
Later Monday, Sen. Markwayne Mullin (R-Okla.) told reporters that the ratings agency “has done this every time we run up against a debt limit or we run up against a spending bill” and would “bounce it right back as soon as we pass a bill.”
In fact, this is Moody’s first-ever downgrade of U.S. sovereign debt; two other ratings agencies, S&P and Fitch, previously downgraded Treasury offerings citing similar concerns about out-of-control borrowing costs and have not restored the tip-top ratings they previously enjoyed.
But market watchers say it’s the pricing of Treasury debt that lawmakers should be paying close attention to as they put together President Donald Trump’s “big, beautiful bill” that is set to extend 2017 tax cuts and pile on more goodies for individuals and corporations without fully offsetting their cost.
“I hope the Republican majority in Congress realize that the bond market is watching,” said economist Ed Yardeni, who coined the term “bond vigilantes” in the 1980s to describe how investors can exert fierce pressure on economic policymakers.
For now, bond investors haven’t really revolted over the latest credit downgrade or the budget bill, Yardeni said, but if Republicans deliver “excessive” fiscal policy, they “could react adversely and try to force the Republicans to come up with a better program.”
The Moody’s downgrade sent a shiver across Wall Street on Monday morning. Yields on longer-dated Treasury securities climbed, with the 30-year Treasury briefly jumping above 5 percent, while rates on 10-year notes — which are used to price everything from home mortgages to credit card loans — at one point rose above 4.5 percent, up about a half point on the month.
While Treasury securities pared back some of those losses over the course of Monday’s trading session, Wall Street economists and market analysts said that the abrupt spike reflected a renewed focus on the U.S.’ gloomy fiscal outlook — and raised fears of a spiral of rising borrowing costs fueling more debt.
Prominent business leaders with close ties to Republicans, like Citadel’s Ken Griffin and Ray Dalio of Bridgewater Associates, have dialed up warnings of the deep risks posed by excessive deficit spending. This echoes the longstanding concerns of traditional conservatives who have long called for significantly lower levels of government spending.
“If we get to the point where people are no longer willing to buy Treasuries, then we’re in real trouble with a sovereign debt crisis,” said Rep. Lloyd Smucker (R-Pa.), who voted to advance the bill Sunday in the Budget Committee.
But Trump’s agenda has not prioritized fiscal rectitude, and the president’s appetite for deep tax cuts combined with thin congressional majorities that are reluctant to cut too deeply into the American social safety net are adding up to another deficit-busting bill.
The GOP megabill hasn’t been fully scored by the Congressional Budget Office, but preliminary estimates produced by the Yale Budget Lab and the Penn Wharton Budget Model project that it would add $3.4 trillion to federal deficits over the next decade. Republicans who say the bill won’t add to the national debt are including economic growth projections that most economists consider to be unrealistic.
“Nothing that the administration is doing presently is in the direction of trying to right the fiscal house,” said Yale Budget Lab President Natasha Sarin, a former top adviser to Treasury Secretary Janet Yellen.
Meanwhile, the cadre of congressional fiscal hawks who have insisted on deep spending cuts appear to be in retreat. When the Moody’s downgrade hit Friday, House GOP hard-liners felt they had maximum pressure to force major changes in the bill — including dramatically restructuring the design of the spending cuts, which are backloaded toward the end of the bill’s 10-year lifespan.
But all signs are that the Republican Party’s Trump-centric politics are set to outweigh any push for fiscal purity. The president and White House officials were enraged after the handful of Budget Committee holdouts tanked the key vote Friday, and as a weekend of tense talks wore on, it became increasingly clear that the Moody’s downgrade actually ramped up pressure for the budget hawks to fall in line, according to three Republicans granted anonymity to describe the talks.
Amid rising Treasury rates, a weakening dollar, and ongoing fallout from Trump’s global tariff regime — including an announcement last week from Walmart that it would need to raise prices — the downgrade added another concern for the health of the U.S. economy. The White House circulated a report over the weekend underscoring the need to pass the bill in order to keep businesses and households from being swamped by tax hikes.
Four key hard-liners, including Norman, voted “present” in a Budget Committee revote Sunday night, allowing the bill to advance. They are now pushing for changes to Medicaid provisions and clean-energy tax credits that could reap significant savings, though at least some of that could be used to offset additional tax cuts, leaving the bill’s overall fiscal footprint largely unchanged.
One hard-right proposal that is likely to be incorporated is to implement work requirements for Medicaid as soon as 2027 — two years sooner than in the initial draft of the House bill.
Paul Winfree, a veteran conservative policy analyst, said the hard-liners were smart to push for the cuts to bite sooner. The markets, he said, “may be sending a signal that they’re skeptical that the savings in the future will materialize. That’s why it’s so important to make sure that the spending reductions start much sooner than 2028 or 2029.”
Jordain Carney contributed to this report.
The chair of the House Agriculture Committee said he’s not willing to “accept bad results” as a tradeoff for the benefits of advancements in artificial intelligence — a direct rebuttal to OpenAI CEO Sam Altman.
“As someone who practiced health care for 28 years, I’m never willing to accept bad results. I think we just need to do our best,” Rep. G.T. Thompson, a Pennsylvania Republican, told reporters Monday.
He was responding to Altman’s comments to Decoded by Blue Light News that people “should accept some bad things happening for the benefits of this technology and people having the agency.”
Pressed further on whether he agreed with Altman’s premise, Thompson replied, “No, I think we have to work harder to prevent any bad things from happening.”
Altman’s comments come in the wake of increased panic over the risks of catastrophic destruction from AI, with many industry leaders and experts arguing that guardrails are needed on the technology to prevent it from spinning out of human control.
Pressure is building on Congress to regulate the rapidly-advancing technology, but lawmakers are divided over whether the AI industry needs federal regulation or if it’s capable of governing itself.
The executives of major AI labs and tech companies gathered at the White House last week to discuss solutions with President Donald Trump, who believes overregulating AI will have national security repercussions. The group ended up signing a “morally binding” AI accord that critics say won’t do enough to prevent a worst-case scenario.
Thompson noted Monday he believes that AI will bring “tremendous solutions,” specifically in regards to finding cures for health issues like cancer and Alzheimer’s disease. But he also said AI has to be led with “principle” — comparing it to how he addressed digital assets in a bill to regulate the cryptocurrency industry, which he worked on as chair of the Agriculture Committee.
“The first principle is ‘do no harm.’ So we need to protect consumers, and that means, I think, building some guardrails — some guidelines — to do that,” Thompson said. He added that the second principle is to “foster innovation.”
“I think AI has a lot to do with that,” he added. “I don’t think AI works without RI: Real Intelligence.”
LE SUEUR, Minnesota — Senate Majority Leader John Thune said Monday there is no “consensus” yet on advancing a bill establishing permanent daylight saving time even as President Donald Trump ramps up pressure on Republicans to pass it.
Thune addressed the matter in a Monday interview after Trump used his Truth Social account multiple times over the weekend to rail against the legislation, known as the Sunshine Protection Act — going so far as to post the personal cell phone number of one of its GOP opponents, Sen. Tom Cotton of Arkansas.
“The president feels strongly on it like he does a lot of issues,” he said. “It’s something we’re having conversations about but there’s no clear path forward or consensus on it yet.”
While Trump singled out Cotton for scrutiny, Thune made clear the opposition to the permanent daylight saving time proposal — which would lead to very late winter sunrises in some parts of the country — ran deeper than one senator.
Cotton has publicly voiced opposition to the proposal for year, citing, among other things, the fact that children in his state would be going to school in the dark for part of the year.
Sen. Roger Wicker (R-Miss.) voiced similar objections Monday to reporters in the Capitol, saying he was mindful of “safety concerns in the more northern and rural states where children get on the school bus in very early hours.”
Thune, who spoke during a campaign swing in Minnesota with GOP Senate nominee Michele Tafoya, has himself opposed previous daylight saving bills. He said Monday that “a lot of it depends on where you are in the country” and that “your geography probably has as much to do with your position on that as anything.”
Sen. Rick Scott (R-Fla.), who has aligned himself closely with Trump, is among the lawmakers who have been pushing to get the bill through the Senate. He recently told POLITICO, “I’m going to make sure it gets passed this year.”
Riley Rogerson contributed to this report.
Democrats have pulled back some of their ads in North Carolina’s Senate race, days after the top Senate Republican super PAC paused its future spending in the state.
WinSenate, a group affiliated with the Senate Minority Leader Chuck Schumer-aligned Senate Majority PAC, has removed roughly $1.1 million in North Carolina ad buys this week, according to ad tracking firm AdImpact. The group still has roughly $18.8 million in future reservations through Election Day.
“Senate Majority PAC is committed to seeing this race through to victory, and will continue to make spending decisions based on how to best build a strong Senate majority,” Senate Majority PAC spokesperson Lauren French said in a statement.
The move, combined with the GOP-aligned Senate Leadership Fund’s decision to pause future spending, are a signal that both parties are shifting resources amid an ever-expanding Senate map. Democrats are increasingly confident in their North Carolina Senate nominee, Roy Cooper, as he continues to hold a sizable lead in public polling over Republican Michael Whatley — but some privately say states like Michigan and New Hampshire need more resources.
Meanwhile, multiple Republican groups, not just SLF, have retreated from the state in recent weeks, effectively deciding that it’s no longer worth the money to boost Whatley’s campaign.
The Koch-aligned Americans for Prosperity Action left North Carolina off its $22 million list of future spending across key Senate contests, and Old North Action removed $6.5 million in ad reservations last month.
The Cooper campaign, however, is still treating the race as competitive, pointing to North Carolina’s closely divided electorate and the fact that President Donald Trump won the state in each of the past three presidential elections.
“North Carolina is a truly 50/50 state and Democrats haven’t won a US Senate race in 18 years. We can’t take anything for granted or our eye off the ball,” said Morgan Jackson, a senior adviser to the Cooper campaign. “DC is broken and we’re going to continue to run this race like we’re ten points down to ensure North Carolinians get the change they desperately need.”
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