Moody’s downgrade and rising yields fuel fiscal concerns in Washington.
Donald Trump’s proposed tax cuts and spending plan cleared a key hurdle in the House this week, but the initiative now faces growing scrutiny as the United States grapples with renewed attention on its rising national debt.
Following last Friday’s downgrade of US credit by Moody’s Ratings, lawmakers from both parties are clashing over the country’s fiscal direction. Moody’s cited persistent high debt levels and slow revenue growth as primary reasons for lowering the nation’s rating to one notch below perfect.
While the House Budget Committee moved forward with the tax and spending agenda — described by some as “one, big, beautiful bill” — analysts warn the plan could significantly expand the deficit. Preliminary estimates from the Committee for a Responsible Federal Budget suggest it may add more than $1 trillion in deficits annually by 2034.
Deficit Debate Intensifies
Despite the downgrade, Trump administration officials have downplayed concerns. Stephen Miran, Chair of the White House Council of Economic Advisers, claimed on Monday that the bill’s measures to curb “waste, fraud and abuse” could reduce the deficit by nearly half a percentage point of GDP. White House press secretary Karoline Leavitt added that the proposal “does not add to the deficit.”
Skepticism persists, particularly in light of recent events. “Moody’s downgrade reflects concerns stemming from years of bad fiscal decisions in Washington,” said Michael Peterson, CEO of the Peter Peterson Foundation. He warned that the proposed bill could accelerate the country’s borrowing trajectory, already projected to rise by $22 trillion in the next decade atop a current $36 trillion debt load.
Markets React to Downgrade
The financial markets quickly responded. On Monday, yields on 30-year US bonds briefly surged past 5%, while shorter-term government debt yields also rose. Moody’s pointed to the “increase over more than a decade in government debt and interest payment ratios” as a key risk factor.
Rising bond yields suggest heightened investor caution. These yields influence borrowing costs across the economy — from mortgages and car loans to credit cards — potentially impacting both consumers and federal budgets alike.
“The government deficit isn’t a problem until investors think it is,” noted Callie Cox, chief market strategist at Ritholtz Wealth Management. “And they’re increasingly telling us that the deficit is a problem.”
Legislative Outlook Uncertain
The downgrade has already begun to shape expectations around the bill’s future. Ryan Sweet, chief US economist at Oxford Economics, said the downgrade is likely to pressure lawmakers to scale back the proposed tax breaks, such as exemptions for overtime income and enhanced deductions for seniors.
“The downgrade will catch the attention of fiscal hawks and make it unlikely that some of the proposed features… will be included in the final package,” Sweet said, predicting a slower path to passage.
Still, top Trump administration figures remain confident. Kevin Hassett, Director of the National Economic Council, stated that they expect the package to pass by mid-summer — although opposition from both parties and market pressure could alter the bill’s timeline and scope.
As the fiscal debate continues, lawmakers must balance tax policy ambitions with the growing risks posed by the national debt — a challenge brought into sharp focus by both investors and credit agencies alike.