Fueling the uncertainty is a deteriorating fiscal projection beyond the tax cuts. Musk’s DOGE does not appear to have slowed the pace of federal spending overall, according to a tracker by the Hamilton Project, a Washington-based think tank. Trump has also long said that large-scale tariffs may bring in enough revenue to offset the deficit impact of the tax bill. But a U.S. trade court on Wednesday night ruled that most of Trump’s tariffs are illegal, clouding the likelihood that the import duties help reduce deficits. (An appeals court reversed that ruling temporarily, but the fate of the tariffs remains unclear.)
And the tax legislation itself is on track to be more expensive than many analysts initially projected. Republicans had initially considered substantial cuts to health-care spending and other programs. While the House-passed bill includes some reductions to Medicaid and food stamps, they represent a small fraction of the cuts originally eyed, further increasing the potential fiscal hit.
“I don’t just hear it from D.C. policy people, I’m hearing it from market participants. When you’re hearing it from the people who are actually trading on the information, that gives it a much higher level of credibility than people trying to use it for political purposes,” said George Callas, who served as senior tax counsel to former House speaker Paul D. Ryan (R-Wisconsin) and now leads the public finance team at Arnold Ventures, an advocacy group. He added of Wall Street investors: “They’re saying they’re really worried about Congress’s fiscal policy. Those warnings are really growing. If you don’t hear them, it’s because you don’t want to hear them.”
Investors have been trying to “get this issue in front of lawmakers,” including the administration, said Gordon Gray, executive director at Pinpoint Policy Institute, a center-right think tank.
“There has been an effort to inform lawmakers and get them connected to financial market observers and participants about the fiscal risks and that those risks are rising,” Gray said, “and that they could have very real impacts to the bond market.”
Theodoric Meyer contributed to this report.