House Republican members—as well as a number of their Republican colleagues in the Senate—are pushing very hard to pass a substantial reform/authorization bill. Their goal is to have this megabill passed by Memorial Day. This is a good proposed bill to help President Donald Trump deliver on his third promise for his second term. This includes significant shifts in tax policy, provisions for Medicaid and immigration.
The megabill also includes a tax cut measure, which is meant to extend the tax cuts that were introduced in 2017 during Trump’s administration. These proposed changes have sent investors scrambling in response, helping spark a historic sell-off on Wall Street. On Wednesday, the Dow Jones Industrial Average tumbled 817 points or 1.9%. In contrast, the S&P 500 fell 1.6%.
The sharp correction in the stock market happened at the same time bond yields were rising dramatically. As a result, the yield on the 10-year Treasury ratcheted up from 4.48% to 4.58%, its highest level since February. Long-term bond yields have exploded for a variety of reasons. In particular, the recent “Liberation Day” tariffs Trump announced and last week’s U.S. credit downgrade by Moody’s were responsible for large parts. These advances have upset debt markets and sparked concerns over the likely economic fortunes of higher borrowing costs.
As House Republicans negotiate the terms of the final megabill, that raises the stakes. The inhumane changes to Medicaid and immigration policy have sparked intense debates over their harm. Analysts are still furiously arguing over the merits of the proposed tax cuts. For some, that has created a perfect storm to raise serious concerns about their impact on the federal deficit and overall economic stability. The recent surge in yields has jarred investor sentiment. This has raised fears about the cascading effect on other markets and the economy as a whole.
