Razor-Thin Vote Sends Trump’s Sweeping Tax-Cut Bill to Senate Amid Fiscal Alarm

Economic

Summary:

The U.S. House narrowly passed a massive tax-and-spending bill advancing Donald Trump’s economic agenda. While the bill includes major tax cuts and boosts military and immigration spending...

A Knife-Edge Victory with Far-Reaching Impact

In a dramatic 215–214 vote, the U.S. House of Representatives passed what President Trump has branded the most “significant piece of legislation” in American history. The bill delivers a sweeping extension of his 2017 tax cuts, enacts new tax breaks for tips and auto loans, and boosts funding for military expansion and a large-scale immigration crackdown. Yet, this legislative triumph may come at an enormous cost: an estimated $3.8 trillion increase to the national debt over the next decade, according to the nonpartisan Congressional Budget Office (CBO).

The vote showcased the razor-thin margins and political tensions engulfing the Republican-controlled House. Two Republicans voted against it, one voted present, and another missed the vote entirely—reportedly because he fell asleep.

Debt Concerns Trigger Investor Backlash

Wall Street has responded with unease. Yields on 30-year Treasury bonds surged to their highest levels since October 2023, reflecting investors’ rising risk premiums for long-term U.S. debt. The dollar has slumped more than 10% since January, and U.S. equities tumbled as fiscal outlook warnings mounted. Solar and green energy stocks fell sharply, reflecting provisions in the bill that target climate-related tax incentives enacted under the Biden administration.

Credit rating agency Moody’s recently downgraded the U.S. sovereign rating, citing unsustainable debt dynamics—a warning echoed by many lawmakers. “We’re putting coal in the boiler and setting a course for the iceberg,” said Republican Representative Thomas Massie, one of two GOP dissenters.

Policy Details: Redistribution and Controversy

The 1,100-page bill includes:

- Extension of 2017 tax cuts for individuals and corporations

- New tax breaks for tipped workers and auto loans

- Cancellation of green-energy subsidies

- Tightened eligibility for food and health programs

- Massive funding for immigration enforcement, with capacity for 1 million deportations annually

Relaxation of firearm silencer regulations

Despite its populist framing, the bill has drawn criticism for favoring the wealthy. According to the CBO, it would reduce income for the bottom 10% of households while boosting it for the top 10%. Democrats have called it a "scam" that undermines working Americans while rewarding Trump's affluent allies.

A newly inserted provision rebrands tax-free savings accounts for children as “Trump Accounts”—a symbolic gesture underscoring the bill’s overt alignment with the former president’s personal brand.

Balancing Ideology and Political Survival

House Speaker Mike Johnson made eleventh-hour concessions to satisfy both the conservative and centrist factions of his party. These included advancing work requirements for Medicaid recipients (effective end-2026), expanding state tax deductions (benefiting high-income earners in blue states), and penalizing future Medicaid expansions. These measures helped secure votes, but also shifted more of the social burden onto vulnerable populations.

Importantly, the bill also includes a provision to raise the U.S. debt ceiling by $4 trillion, designed to avoid a summer default. Ironically, this move to accommodate massive fiscal expansion has intensified the very investor anxieties Republicans have long decried.

A Tumultuous Senate Battle

The legislation now heads to the Republican-led Senate, where it is expected to face weeks of amendment battles and further scrutiny. Although passage remains likely, the bill may undergo significant revisions before reaching Trump’s desk.

In a world of rising borrowing costs, strained geopolitical ties, and an uncertain election season ahead, the bill’s passage represents not just a political gamble but a seismic economic shift. As the U.S. sails into deeper debt, lawmakers, investors, and households alike must brace for the long-term consequences.

Source: Reuters

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Gerik

Economic

Jobless Claims Hold Steady Amid Broader Uncertainty

The U.S. labor market remains robust despite growing macroeconomic headwinds. According to the Labor Department’s latest report, initial claims for unemployment benefits decreased by 2,000 to a seasonally adjusted 227,000 in the week ending May 17—slightly below economists’ expectations. This indicates that employers are largely avoiding layoffs, even as business conditions remain volatile.

The figure is within the year's typical range (205,000–243,000), and analysts note that no significant labor market deterioration is evident yet. "There is no serious deterioration in the labor market to date," said Christopher Rupkey of FWDBONDS. "The economy is weathering the storm for now."

Continuing Claims Edge Higher, Suggesting Friction in Hiring

Despite the headline stability, some cracks are appearing. Continuing claims rose by 36,000 to 1.903 million, the highest since late 2021. This increase suggests a growing number of workers are remaining unemployed for longer periods, highlighting potential challenges in job matching or weak labor demand in specific sectors.

The median duration of unemployment increased from 9.8 weeks in March to 10.4 weeks in April, reinforcing concerns that it’s becoming more difficult for displaced workers to find new positions.

Federal Workforce Under Pressure

An important development is the surge in unemployment applications under the Unemployment Compensation for Federal Employees (UCFE) program. This coincides with the Trump administration’s aggressive government downsizing agenda, led by Elon Musk's Department of Government Efficiency (DOGE), which has ramped up layoffs across federal agencies.

These layoffs, while not yet large enough to disrupt national labor data, are contributing to localized job losses and could impact regional consumption patterns and tax revenues.

Tariffs and Hiring Freeze Concerns Loom

While job creation remained strong in April with 177,000 new positions, economists are bracing for a slowdown in the second half of 2025. Trump’s shifting tariff policies, which have disrupted trade flows and increased input costs, are expected to reduce business confidence and hiring appetite.

If import duties continue to depress corporate investment and squeeze margins, analysts forecast job growth could fall below 100,000 per month—barely enough to match population growth.

Slower Growth, but No Sign of Collapse Yet

Despite fears of policy-induced economic drag, labor market indicators are not flashing red. As Carl Weinberg of High Frequency Economics notes, “If the labor market were really softening in an incipient recession, you would not have to squint at the chart to see it.”

Nevertheless, the rising duration of unemployment and continued layoffs in the public sector are warning signs. Next week’s data on continued claims and nonfarm payrolls will offer further clarity on whether the job market’s current resilience can withstand the pressures ahead.

Source: Reuters

To stay updated on all economic events of today, please check out our Economic calendar

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Olivia Brooks

Political

Finance ministers and central bank governors from the Group of Seven democracies pledged on Thursday to address "excessive imbalances" in the global economy and said they could increase sanctions on Russia.

The finance ministers and central bank governors, who met in the Canadian Rocky Mountains, said there was a need for a common understanding of how "non-market policies and practices" undermine international economic security.

The final communique called for an analysis of market concentration and international supply chain resilience.

"We agree on the importance of a level playing field and taking a broadly coordinated approach to address the harm caused by those who do not abide by the same rules and lack transparency," it said.

European Commission Executive Vice President Valdis Dombrovskis said the G7 ministers discussed proposals for further sanctions on Russia to try to end its war in Ukraine. They included lowering the G7-led $60-per-barrel price cap on Russian oil, given that Russian crude is now selling under that level, he said.

The G7 participants condemned what they called Russia's "continued brutal war" against Ukraine and said that if efforts to achieve a ceasefire failed, they would explore all possible options, including "further ramping up sanctions."

Russia's sovereign assets in G7 jurisdictions would remain immobilized until Moscow ended the war and paid for the damage it has caused to Ukraine, the communique said. It did not mention a price cap.

Brent crude currently trades around $64 per barrel.

A European official said the United States is "not convinced" about lowering the Russian oil price cap. A U.S. Treasury official did not immediately respond to a request for comment.

Treasury said earlier this week that Secretary Scott Bessent intended to press G7 allies to focus on rebalancing the global economy to protect workers and companies.

The communique also recognized an increase in low-value international "de minimis" package shipments that can overwhelm customs and tax collection systems and be used for smuggling drugs and other illicit goods.

The duty-free de minimis exemption for packages valued below $800 has been exploited by Chinese e-commerce companies including Shein and Temu (PDD.O), opens new tab.

Source: Reuters

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Balogun Opeyemi

Japan's core inflation accelerated to 3.5% in April, government data showed on Friday, as persistent cost pressure strengthens the case for the central bank to focus on exiting its decade-long ultra-easy policy.

The core inflation figure, which strips out prices for fresh food, was higher than expectations of 3.4%, according to economists polled by Reuters, marking the highest level since January 2023, according to LSEG data.

Headline inflation climbed 3.6% from a year ago, staying above the Bank of Japan's 2% target for more than three years, steady from the prior month.

Bank of Japan Governor Kazuo Ueda has signaled the central bank's readiness to keep raising rates, albeit at a slower pace, while the authorities pause to assess the impacts from U.S. tariffs.

This is breaking news. Please refresh for updates.

Source: CNBC

Risk Warnings and Disclaimers

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Liam Peterson

Business activity in Europe declined in May even as President Trump rolled back some tariff hikes while leaving a wide range of duties to be determined by negotiation, according to surveys released Thursday.

Businesses and investors were shocked by the scale and breadth of the tariff rises announced by Trump on April 2, leading to sharp declines in prices on financial markets, while businesses around the world trimmed overseas orders and cut back on production, pushing measures of activity to a 17-month low.

However, the Trump administration later suspended many of those increases for 90 days, and reached an agreement with China on May 12 to roll back a series of huge tariff hikes. The administration is conducting negotiations with a number of economies, but has also said it might set some duties unilaterally when the 90-day pause ends.

Surveys conducted by data firm S&P Global during the early weeks of this month suggest businesses have responded cautiously to those moves, which leave the outlook for world trade highly uncertain.

However, the weakness in Europe was driven by its more domestic-focused services sector, with manufacturing output continuing to increase.

"While foreign demand for services is softening, it is the sluggish domestic demand that seems to be dragging the sector down," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, which commissions the surveys for the eurozone.

Based on the surveys, the composite Purchasing Managers Index for the eurozone-a measure of activity in the services and manufacturing sectors-fell to 49.5 in May from 50.4 in April, a six-month low.

A reading above 50.0 points to an increase in activity, while below that level a decline is indicated. Economists surveyed by The Wall Street Journal last week had expected to see a rise to 50.8 on indications that U.S. tariffs would settle at a lower level than initially feared.

Business activity also declined in Japan, again due largely to a slowdown in the services sector. By contrast, Australian business activity continued to increase, although at a slower pace, while manufacturers reported a first rise in new export orders for three months.

India's economy has been one of the world's strongest performers over recent years, and the surveys showed that activity rebounded sharply in May to record the fastest increase in over a year, as did export orders.

The eurozone economy grew at a faster pace in the first three months of the year than it did at the end of 2024, due largely to a surge in Irish exports of pharmaceuticals to the U.S. ahead of anticipated tariff hikes.

Those have yet to materialize, although the Trump administration is conducting a review of the sector under a process that would allow it to impose tariffs for reasons of national security.

For now, European exporters face an additional 10% tariff on their sales to American businesses, unless they make automobiles, steel or aluminum, in which case the duty is 25%.

The European Union's economists Monday said they expect exports to grow much more weakly than anticipated before the tariffs were announced, and now see the eurozone economy growing by 0.9% this year, having expected to see an expansion of 1.3% when they last produced forecasts in November. The surveys released Thursday suggest a slowdown has begun.

Even before the tariffs were announced, businesses acting in anticipation of their implementation led to big swings in economic activity around the world.

Most significantly, U.S. businesses tried to delay a jump in costs by stockpiling ahead of the April 2 announcement. That contributed to a contraction in the U.S. economy during the first quarter, a fate shared by Japan. By contrast, a rise in exports to the U.S. helped China's economy to record a strong expansion, while the U.K. saw a jump in activity on higher sales of aluminum to American buyers.

Over coming quarters, economic growth around the world is likely to depend in part on whether U.S. businesses decide to add to their stockpiles under the assumption that tariffs and therefore their costs will be higher later in the year, or run down those inventories, which can be costly to maintain for long.

Write to Paul Hannon at paul.hannon@wsj.com

Source: Dow Jones Newswires

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Liam Peterson

The number of Americans filing new applications for unemployment benefits fell last week as companies hoard labor, suggesting the economy maintained a steady pace of job growth in May, but it is becoming harder for those out of work to find new opportunities.

The weekly jobless claims report from the Labor Department on Thursday showed unemployment rolls approaching levels last seen in late 2021 amid a reluctance by employers to increase headcount because of economic uncertainty stemming from President Donald Trump's policies, including a shifting position on tariffs, mass deportations of migrants and firings of public workers."Employers have so far elected to keep their staff headcounts steady despite the swirling winds of unprecedented policy changes for the economy emanating from down in Washington," said Christopher Rupkey, chief economist at FWDBONDS. "There is no serious deterioration in the labor market to date, and the economy is weathering the storm for now."

Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 227,000 for the week ended May 17. Economists polled by Reuters had forecast 230,000 claims for the latest week. Labor market resilience has provided the Federal Reserve cover to hold interest rates steady while policymakers monitor the Trump administration's unfolding policies.

Independent surveys, however, point to a pickup in layoffs in the coming months as the administration's import duties hurt demand, snarl supply chains and fuel inflation.

A survey from S&P Global on Thursday showed a composite measure of manufacturing and services industries employment tipped into contraction territory in May, "primarily reflecting concerns over future demand prospects but also in response to worries over rising costs and labor shortages."

Business activity, however, increased this month following a truce in the trade war between the U.S. and China. S&P Global said the pausing of higher tariffs for 90 days likely resulted in some companies front-running imports and orders.

Economists are expecting layoffs in the transportation, warehousing and retail sectors as tariffs weigh on consumer spending.

"A large share of these jobs likely will go as consumers' spending swings from above-trend to below-trend in the third quarter, after tariff-driven price rises have kicked in," said Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. "The pace of firing will rise and new hiring will decline, lifting weekly claims to about 250,000 by the end of June."

The rise in business activity this month was accompanied by a surge in price pressures, hinting at an acceleration in inflation in the coming months and keeping stagflation on the table. Gross domestic product contracted in the January-March quarter for the first time in three years.

The data was, however, overshadowed by the passage in the U.S. House of Representatives of Trump's "big, beautiful bill," which the nonpartisan Congressional Budget Office estimated would add about $3.8 trillion to the federal government's $36.2 trillion debt in the next decade, if it becomes law.

Stocks on Wall Street were trading slightly higher and the dollar gained versus a basket of currencies. The 30-year Treasury yield reached its highest level in 19 months before easing.

LONG UNEMPLOYMENT SPELLS

The claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of May's employment report. Claims rose marginally between the April and May survey periods.

The economy added 177,000 jobs in April. Economists expect job growth to slow below 100,000 per month, the level they say is needed to keep up with growth in the working-age population.

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will shed more light on the health of the labor market in May. The so-called continuing claims increased by 36,000 to a seasonally adjusted 1.903 million during the week ending May 10, moving back to levels last seen in November 2021, the claims report showed.

"This report suggests that May employment growth should still be decent, though the gradual rise in continuing claims does point to some upward pressure on unemployment," said Abiel Reinhart, an economist at J.P. Morgan.

Employers' hesitancy to add to headcount has left many people who lose their jobs to experience long spells of unemployment. The median duration of unemployment jumped to 10.4 weeks in April from 9.8 weeks in March.

While the labor market is holding up, the housing market continues to struggle and could remain sluggish as the bond market selloff drives up mortgage rates.

Existing home sales slipped 0.5% in April to a seasonally adjusted annual rate of 4.00 million units, the National Association of Realtors said in a third report.

Sales last month were the slowest for April since 2009, marking a weak start to the spring selling season. Housing inventory soared 9.0% to 1.45 million units, the highest in more than four years.

"The market is slowly but steadily shifting in favor of buyers, but more listings will be needed to bring sales out of the cellar," said Daniel Vielhaber, an economist at Nationwide.

"High mortgage rates and uncertainty about forward financial conditions may cause many buyers to put off a home purchase this year and wait for a more stable environment. We see the housing market slump continuing through the end of the year."Reporting by Lucia Mutikani; Editing by Paul Simao

Source: Kitco

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Manuel

Political

Central Bank

The U.S. Supreme Court allowed President Donald Trump's firing of two Democratic members of federal labor boards to remain in effect while their legal challenges proceed in a dispute that tests his power over independent government agencies.

The court also sought to allay concerns voiced by critics of the Republican president that letting him fire the two officials would jeopardize the independence of the U.S. Federal Reserve.

The court temporarily blocked orders by two separate Washington-based federal judges that had shielded Cathy Harris from being dismissed from the Merit Systems Protection Board (MSPB) and Gwynne Wilcox from being removed from the National Labor Relations Board (NLRB) before their terms expire. Their legal challenges are ongoing in lower courts. Both were appointed by Trump's Democratic predecessor Joe Biden.

In a brief, unsigned opinion, the court said that Thursday's action "reflects our judgment that the government is likely to show that both the NLRB and MSPB exercise considerable executive power."

"Because the Constitution vests the executive power in the president," the court wrote, "he may remove without cause executive officers who exercise that power on his behalf, subject to narrow exceptions recognized by our precedents."

The court has a 6-3 conservative majority. Its three liberal justices dissented from the order.

Concerns have arisen in Washington that empowering Trump to oust Harris and Wilcox could imperil the Fed's independence.

"We disagree," the court stated. "The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States."

Trump rattled financial markets by criticizing Powell over the Fed's decision, for now, not to further cut interest rates, even calling the Fed chief a "major loser." Trump deescalated the matter by saying he has no plans to fire Powell but previously said he believes the Fed chief would leave if he asked him to do so.

The legal fight over the firings of Harris and Wilcox has become an important test of Trump's efforts to bring under his sway federal agencies meant by Congress to be independent from a president's direct control.

Deepak Gupta, a lawyer for Wilcox, emphasized that the court's action on Thursday was not a final decision on underlying legal merits of Trump's firings, adding that "we look forward to pressing our case in court."

Trump's move to oust Harris and Wilcox was part of his far-reaching shakeup and downsizing of the U.S. government, including firing thousands of workers, dismantling federal agencies, installing loyalists in key jobs and purging career officials.

Chief Justice John Roberts on April 9 temporarily halted the judicial orders blocking Trump's firing of the two. The labor boards subsequently confirmed that Harris and Wilcox were no longer in their posts.

PRESIDENTIAL POWER

U.S. District Judges Rudolph Contreras and Beryl Howell separately upheld federal laws protecting officials serving in these posts from being fired without cause, rejecting Trump's argument that the measures passed by Congress encroach on authority granted to the president under the U.S. Constitution.

The judges ruled that statutory protections for board members from being removed without cause conform with the Constitution in light of a 1935 Supreme Court precedent in a case called Humphrey's Executor v. United States. That ruling held that a president lacks unfettered power to remove commissioners of the Federal Trade Commission, faulting President Franklin Roosevelt's firing of a commissioner for policy differences.

Liberal Justice Elena Kagan wrote in a dissent that Thursday's order was "nothing short of extraordinary," adding that the court's majority had allowed Trump to "overrule Humphrey's by fiat" while the legal challenges proceed.

"Our Humphrey's decision remains good law, and it forecloses both the president's firings and the court's decision to award emergency relief," wrote Kagan, joined by fellow liberal Justices Sonia Sotomayor and Ketanji Brown Jackson.

Biden appointed Harris in 2022 to a seven-year term. Trump moved to fire her in February after naming Henry Kerner, a Republican, as acting MSPB chair.

Federal workers who lose their jobs can bring a challenge before the merit board, an independent three-member panel with quasi-judicial powers, seeking reinstatement.

The removal of Harris would leave the board without a quorum, making it unable to decide cases. Federal law lets a president remove MSPB officials only with cause such as inefficiency, neglect of duty or malfeasance.

The judge overseeing Wilcox's case upheld similar job protections for the NLRB.

The NLRB, with five members when fully stocked, enforces laws protecting the rights of private-sector workers to organize, join labor unions and advocate for better working conditions, and oversees union elections.

Biden named Wilcox, the first Black woman on the NLRB, to a second five-year term in 2023. Trump moved to fire her in January. Without Wilcox, the board lacks a quorum.