As congressional Republicans advanced their megabill in recent months, many fiscal hawks in the party figured they had a powerful force on their side: wary titans of finance who had started sending powerful signals that their appetite for purchasing U.S. debt was not, in fact, endless.
Turns out Wall Street was barely a bump in the road.
In passing the One Big Beautiful Bill Act last week, GOP leaders blew past a host of warnings to potentially add several trillion dollars of additional borrowing — brushing off concerns that they were missing a late opportunity to put the nation on a more sustainable fiscal trajectory in favor of piling on expensive new tax cuts.
The whole episode was a stark display of how short-term rewards and Trump’s demands outweighed any anxieties about long-term calamity — even from a constituency as powerful as Wall Street, whose major players are reliable financiers for politicians of both parties.
Some heavyweights like JPMorgan Chase CEO Jamie Dimon and billionaire investor Ray Dalio emerged as clarion voices for fiscal rectitude. Many others kept quiet on macroeconomic issues and advocated instead for the extension of tax cuts to promote economic growth — and, frequently, their own personal welfare.
Rather than send a big, beautiful signal to the bond markets that discipline would finally be restored, Republicans appear to have done the opposite: Yields on 10-year Treasuries have crept up around 18 basis points over the past week as market watchers ingested tariff news, but also openly wondered if either party is capable of reigning in the roughly $36 trillion national debt.
“If one of the goals was to calm the bond market down, I wouldn’t take much comfort from the past couple of days,” said economist Ed Yardeni, who coined the term “bond vigilantes” to describe investors who undertook massive selloffs of bonds to protest Fed policies in the 1980s.
“The act is not designed as a deficit reduction act. It’s designed as, ‘Let’s cross our fingers and hope that lower taxes boost economic growth again fast enough to bring in revenues,’” he added.
“Growth” was the word repeatedly invoked by President Donald Trump and his allies on Capitol Hill, who relied on rosy economic projections developed inside the White House to argue that the bill’s tax cuts would essentially pay for themselves.
Outside observers saw an entirely different kind of growth: Independent forecasters — including the nonpartisan in-house scorekeepers at the Congressional Budget Office — predicted the added debt created by the bill would increase federal borrowing costs, swamping any economic gains reaped through the tax cuts.
It’s a version of the “debt spiral” that many fiscal doomsayers have warned the U.S. might be entering after spending decades as the world’s safest investment. Lawmakers heard those calls loud and clear at various points recently.
In May, Moody’s Ratings downgraded Treasuries from their prior top rating, citing “persistent, large fiscal deficits [that] will drive the government’s debt and interest burden higher.” In late March, a group of House Republicans heard directly from Dalio, who urged them in a private briefing to start bringing annual deficits down to 3 percent of GDP. Deficits are currently running more than twice that.
Members were already spooked by the spike in Treasury yields after Trump rolled out his sweeping “Liberation Day” tariffs in April. Dalio told them that an even steeper selloff could occur if they didn’t get the nation’s fiscal house in order. The concern seemed to be confirmed when yields for 20 and 30-year Treasuries closed out above 5 percent the day that the House passed the sweeping legislation.
Still, the GOP did not end up heeding Dalio’s warning, and last week he said on X that he now expects sizable increases of government debt relative to GDP. That, in turn, would lead to “unimaginable” tax increases or spending cuts — or, perhaps more likely, inflationary money-printing.
He said that “big, painful disruptions will likely occur” if lawmakers can’t bring the deficit down to 3 percent of GDP.
Earlier on, GOP lawmakers on the House Budget Committee Republicans had taken Dalio’s message to heart, and his March briefing was part of what led House Budget Chair Jodey Arrington (R-Texas) and Budget Vice Chair Lloyd Smucker (R-Pa.) to craft a provision in the House bill linking the amount of tax cuts to spending cuts in the domestic policy legislation.
But when the Senate took up the House products, Senate Republicans added hundreds of billions in tax cuts to the legislation while jettisoning north of $200 billion in spending cuts because they didn’t adhere to Senate budget rules. With pressure from the White House, Senate Republicans forced their product down the throats of fiscal hawks in the House.
As a result, the bill ended up missing the mark on the House framework by around $600 billion dollars, according to the nonpartisan Committee for a Responsible Federal Budget.
“The one piece that I wish was stronger coming out of the Senate was the offset provision, the deficit-neutral principle that was hard-wired into our budget resolution,” Arrington said in an interview after the House passed the final legislation.
Arrington, who authored an austere balanced budget he dubbed “Reverse the Curse” before ultimately supporting Trump’s deficit-busting bill, said he was “not sure either party is unilaterally” capable of changing the nation’s fiscal path. He suggested Congress would have to turn to a bipartisan commission, similar to one established in 2010 under former President Barack Obama, to address the issue.
Outsourcing the hard trade-offs necessary for deficit reduction is one thing; mustering the political will to enact them is another. The megabill drama showed that the issue is hard to crack for even the most powerful lobbies, said Andrew Moylan of Arnold Ventures, a think tank endowed by billionaire investor John Arnold that advocated an array of policies to help close the fiscal gaps in the GOP’s megabill.
“I think that it’s going to be difficult for any actor, whether it’s a Wall Street person or a policy organization or grassroots group or whatever, to have an impact on this debate that helps us reduce deficits unless constituents are feeling pain that they feel like Congress needs to help address.”
Some in the House GOP are hoping that they’ll have a chance to enact additional spending cuts in further party-line bills this year as well as through the appropriations process. Many conservatives said they were reassured by 11th-hour conversations they had with White House budget chief Russ Vought before the final vote.
“You’re going to see a lot of fiscal restraint to add to this growth picture,” said Rep. Andy Barr (R-Ky.), a House Financial Services Committee member. “So growth, fiscal restraint — that will ultimately send the virtuous signal to the bond market.”
Barr said he also supports updating leverage requirements for banks to encourage them to purchase more Treasuries, which could help bring yields down.
As for Democrats, Rep. Ro Khanna of California laid out a progressive debt reduction plan in June that would cut the deficit by $12 trillion through reforms to defense contracting, a crackdown on “corporate profiteering” in Medicare and tax hikes for billionaires and companies.
In an interview Monday, Khanna predicted that serious deficit reduction would most likely occur under a Democratic trifecta rather than as part of a bipartisan effort.
Republicans, Khanna said, “have to be willing to raise taxes on the wealthy. That’s a philosophical difference. The math just doesn’t work without raising taxes on the wealthy.”
