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Debt cloud suddenly hangs over megabill talks

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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.

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Congress

Republicans’ faith in Mike Johnson is fading fast

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Speaker Mike Johnson faced down a bruising “hell week” and ultimately pulled several key GOP bills across the line. But it came at a cost.

Republicans say Johnson’s habit of making last-minute, often contradictory promises to keep his tiny majority functioning is starting to catch up with him. Frustrations over his leadership, they say, are at an all-time high.

“I think this guy has divided us with a smile,” said Rep. Max Miller (R-Ohio), a longtime Johnson skeptic who has grown more vocal with his criticism and now says “without question” he will vote against keeping Johnson as top GOP leader in the next Congress.

This week’s chaos came to a head late Wednesday, with multiple members of key Republican factions yelling and swearing at Johnson on the House floor and in closed-door meetings.

Johnson tried to quell a rebellion among conservative hard-liners by privately reneging on an agreement with a group of midwestern Republicans that would have tied legislation allowing year-round sales of an ethanol fuel blend to the must-pass farm bill.

When some of the ethanol provision’s backers ran back to the floor to try to figure out what happened, they were too late. Some later confronted Johnson, who is now promising a future vote on the matter.

“Bullshit,” Rep. Ann Wagner (R-Mo.) yelled at the speaker as he tried to explain what happened later in the day, according to three people who participated in the huddle and spoke on the condition of anonymity.

This week’s floor chaos was just the latest example of Johnson leading crisis by crisis, ultimately pulling off GOP priorities but leaving a trail of disgruntled members and staffers in his wake, according to more than a dozen Republicans interviewed for this story.

It all comes as rank-and-file lawmakers grow increasingly worried about their ability to govern over the coming months and retain their majority in November — and amid quiet conversations about who else might be capable of leading the House GOP. While Johnson successfully managed this week to end the record shutdown of the Department of Homeland Security and fend off the lapse of a key surveillance program, more challenges loom.

A long-term deal to maintain those spy powers remains elusive, the Senate is expected to reject the farm bill House Republicans approved Thursday and members are agitating for yet another party-line reconciliation bill that stands to continue surfacing the GOP’s internal divides.

Johnson told reporters Thursday that complaints about his leadership style amounted to “fake news.”

“No one in this conference can say that I went against my word on anything,” he said. “You had requests and demands on opposite sides of the conference that were literally irreconcilable. If you meet one group’s demands, you can’t meet the other. And so it takes a lot of time to get people to a consensus and an agreement on that.”

“Everybody’s very happy with their work,” Johnson said. “It’s all smiles.”

Wagner hardly appeared thrilled as she recounted Wednesday’s events in an interview Thursday.

“We were promised a vote on this,” she said of the ethanol measure. “We went back to do our work in our offices, and then a deal was cut on the floor. … And once we became aware of it, we needed to extend those discussions.”

The ethanol measure, allowing year-round sales of a fuel blend high in corn-derived alcohol, vexed a coalition of Republicans who saw the measure as harming petroleum and refiner industry interests in their districts as well as ultraconservatives who had ideological objections.

The result of the infighting was that a Wednesday vote on the budget blueprint for a planned immigration enforcement funding bill stayed open for more than five hours as dozens of Republicans withheld their votes until they got a satisfactory response.

To placate them, Johnson ultimately agreed to delay consideration of the farm bill for a time — only to reverse himself again after livid ag-state members demanded a vote on the farm bill before the scheduled weeklong recess, leaving the ethanol issue for later.

That in turn enraged hard-liners like Rep. Chip Roy (R-Texas), who accused Johnson of going back on his word from only a few hours earlier.

In a closed-door meeting just off the House floor Wednesday night, Rep. Mariannette Miller-Meeks (R-Iowa) complained about how farm-state members always vote in line with GOP leadership only to get jilted on their own priorities.

During a separate “family meeting” in Johnson’s office, Rep. Michelle Fischbach (R-Minn.), who sits in a Johnson-appointed slot on the Rules Committee, asked why they should believe the speaker when he promised a future vote on the ethanol issue. Johnson had already promised the group a vote in late February that did not materialize.

Miller, a former White House aide to President Donald Trump, said he ultimately agreed to vote for the budget measure out of his support for Trump and after Homeland Security Secretary Markwayne Mullin personally asked him to. But he said the episode demonstrated why he thinks Johnson is unfit to lead Republicans beyond this Congress.

“It’s pretty debilitating when you’re supposed to follow a guy into battle, and I wouldn’t trust him to get out of a wet paper bag with an M4,” he said.

Johnson was happy to put the 76-day DHS shutdown behind him Thursday, telling reporters that “sometimes it’s an ugly process” but that he has “never broken my word to a single person in this building.”

But the instances of disarray on the floor have piled up in recent months, and not all of them can be attributed solely to the GOP’s tiny majority. Last week, Johnson and other leaders appeared unaware of serious concerns in his conference’s ranks about legislation curbing Endangered Species Act protections. They were forced to postpone consideration of the bill.

The week before that, the House cleared an extension of temporary immigration protections for people from Haiti — the latest instance where a Democratic-led discharge petition had succeeded in commandeering the GOP agenda.

Many Democrats have been happy to watch the internal drama and gloat, mocking the GOP’s disarray and papering over the pains their own caucus experienced when they were in power. But they have insisted the drama of the past few months stands alone.

“First reaction is: ‘Oh, my God, this would never happen under Nancy Pelosi,’” Rep. Don Beyer (D-Va.) said in an interview, harking back to speakers of the past. “In fact, it probably wouldn’t have happened under John Boehner or Paul Ryan or even Kevin McCarthy.”

Johnson has defenders inside the GOP ranks, such as Rep. Mike Lawler (R-N.Y.), who said “he’s doing fine” and “the bills are moving.” He also continued to enjoy the support of the most important Republican — Trump — who has shown no outward sign of dismay with Johnson’s leadership.

“These are complex issues, and sometimes they take more than five minutes to work through,” Lawler said.

Johnson will be tested as soon as lawmakers return from recess. The pro-ethanol Republicans say Johnson pledged to orchestrate a standalone vote on their measure the week of May 12, according to six people involved in the talks. Many Republicans expect it to fail since it will no longer be attached to a must-pass bill.

“Do I believe him? Probably not,” one of the House Republicans involved said about that timeline.

Wagner, when asked whether she had confidence in Johnson and GOP leaders, singled out House Majority Leader Steve Scalise for having “really stood up in the pack” and “gave his word in terms of how we would move forward.”

Even the members who weren’t part of the back-and-forths over ethanol blends or surveillance safeguards or budget priorities this week were dismayed by how it all went down.

Rep. Daniel Webster (R-Fla.), a veteran House member who announced his retirement earlier this week, parked himself on the House floor during part of the meltdown. Asked later what he thought of the interactions, he said, “I just thought we got to get it together.”

“We probably didn’t have it together when we started voting,” he said. “Probably should have waited until we were sure. It’s a lot of wasted time.”

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Congress

Anthropic, OpenAI back Warner-Budd workforce data bill

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A bipartisan Senate bill that would create a federal framework to track how artificial intelligence is reshaping the U.S. workforce has won backing from Silicon Valley tech giants including Anthropic, Google, Microsoft and OpenAI.

Sens. Mark Warner (D-Va.) and Ted Budd (R-N.C.) introduced the Workforce Transparency Act on Thursday, which intends to give Washington the real-time information needed to develop policy solutions for economic disruption and job losses associated with the technology.

The legislation would direct the Labor Department to collect and publish anonymized data on AI adoption across the public and private sectors. Data collected would include how workers use the technology and how that usage evolves over time.

The proposal comes as anxiety rises in Washington about the long-term effects of AI on the labor market and as both political parties craft messaging to respond to public concerns about the technology.

It would also establish a voluntary reporting system where companies and agencies can submit AI adoption data, and would then make anonymized versions of the data available to businesses, researchers and agencies.

Microsoft’s Corporate Vice President of U.S. Government Affairs Fred Humphries said the framework is helpful for “understanding AI deployment, productivity gains, and the creation of new jobs.”

“We know AI is beginning to transform work, but we don’t have enough data to understand how,” said Joshua New, director of policy at SeedAI, a nonprofit focused on American AI readiness that’s backing the bill.

The proposal is also supported by Alliance for Secure AI, Business Software Alliance, SCSP Action Program and Erik Brynjolfsson, a senior fellow at the Stanford Institute for Human-Centered AI.

Warner has made this issue a cornerstone of his reelection campaign, launching an ad in December highlighting how the rise in AI adoption is coinciding with steep job losses and an affordability crisis in the U.S.

CLARIFICATION: Updates to clarify Fred Humphries’ job title.

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Congress

Trump signs DHS legislation, ending record-breaking shutdown

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President Donald Trump signed bipartisan legislation on Thursday to fund key agencies at the Department of Homeland Security, officially concluding the record-breaking shutdown.

After more than 10 weeks, the president’s signature restores funding to the Coast Guard, TSA, Secret Service, FEMA and the Cybersecurity and Infrastructure Security Agency, along with other sub-agencies that don’t touch immigration enforcement. Congressional Republicans are separately working to enact tens of billions of dollars for Border Patrol and Immigration and Customs Enforcement through a party-line reconciliation package, a process that progressed this week with the adoption of a framework to unlock a special budget authority to bypass the Senate filibuster.

House Republicans pushed past internal divisions as the White House and DHS warned stopgap funds to cover missed paychecks — pulled from the One Big Beautiful Bill — would run out within days. Agencies were bracing for additional furloughs as soon as next week, as DHS staffers were expected to get their final paychecks on May 8, according to an administration official, granted anonymity to share the timing.

While some immigration agencies have yet to be funded, enforcement operations were already paid for under last year’s GOP megabill. ICE and Border Patrol agents never missed a paycheck.

Still, the DHS shutdown dragged on for 76 days, leaving the agency in limbo at a critical moment on a number of fronts — from national security concerns to hurricane preparedness and lingering impacts on U.S. travel. During that time, Secretary Kristi Noem was fired and Sen. Markwayne Mullin confirmed as the new head of the agency, while the lengthy shutdown left staff dejected at a time when the department was trying to regain its footing after months of turmoil.

The agency, which oversees ICE and CBP, has been at the center of the monthslong funding fight on Capitol Hill. In the wake of the Trump administration’s deadly operation in Minneapolis, Democrats stayed united in resisting additional funding for those agencies without additional guardrails placed on immigration enforcement. Democrats ultimately failed to gain significant policy concessions from the Trump administration, and have questioned why the White House needs more funding for immigration agencies when it has billions remaining for border security and deportations from last year’s GOP megalaw.

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