WASHINGTON (Reuters) – Donald Trump’s Republicans are promising to hit the gas next year when they assume full control of the U.S. Congress, with little to stop them from executing the president-elect’s promises to slash taxes and reorder the global trade landscape.
But the $28 trillion Treasury debt market is flashing a red warning light against adding excessively to a debt load already expanding at a pace of $2 trillion a year.
What is yet to be seen is whether these concerns will be enough to slow Republican lawmakers’ ambitions or push them to find offsetting savings on a tax break agenda estimated to cost nearly $8 trillion over 10 years.
Markets are betting that Trump’s tax cuts and tariffs will fuel inflation as investors demand stronger returns on longer-term Treasuries. Yields on the benchmark 10-year U.S. Treasury note have risen to 4.4%, up about 75 basis points since “Trump trades” began dominating Wall Street in late September.
That trend is driving higher interest rates for mortgages, car loans and credit card debt, counteracting Federal Reserve rate cuts and potentially putting U.S. growth at risk.
It is also raising the cost of financing U.S. deficits and eating up the federal budget. Interest on the public debt topped $1 trillion for the first time during the fiscal year ended Sept. 30, making it the second-largest single expenditure after the Social Security retirement program.
“In a weird way, the bond market is now on the verge of running this country,” said Republican Representative David Schweikert, who sits on the House of Representatives’ tax- and trade-focused Ways and Means Committee.
The market signals mean there are no “blank checks” for Congress and the tax cuts will need to be paired with spending cuts, he said in an interview. “It is a hurdle in the financing of the U.S. government.”
Managing that hurdle will fall to Trump’s pick to lead the Treasury Department, hedge fund manager Scott Bessent. Bessent has argued that Trump’s economic agenda will unleash stronger economic growth that will in turn drive up revenue and boost market confidence. His appointment could also reduce the chance of severe tariffs.
The budget math is daunting. Trump has promised to extend the tax cuts passed in 2017, during his first term in the White House, for individuals and small businesses that are due to expire next year, which tax experts say will add $4 trillion to the current $36 trillion in total U.S. debt over 10 years.
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