Ed Mills on the Most Expensive US Bill, Moody's Downgrade, and Trump's Trade Strategy

Legislative Hurdles for a Major Tax Bill

• 🏛️ The House Speaker is aiming for a vote on a significant tax bill this week, despite some Republican opposition, with a base case suggesting it will pass the House in May and the Senate in June.
• 💰 This bill is described as the most expensive in U.S. history, potentially costing between $5-7 trillion, with front-loaded provisions supercharging fiscal stimulus.
• ⚠️ While speed bumps are expected, the bill's smooth progression so far has been surprising, given that most legislation typically faces multiple near-death experiences.

Moody's Downgrade and Bond Market Reaction

• 📉 Moody's has downgraded the U.S. credit rating to AA1, following similar actions by Fitch and S&P, citing concerns over the fiscal trajectory and the escalating debt and deficit.
• 📈 This downgrade is seen as a primary catalyst for the sharp rise in bond yields, with the 30-year yield exceeding 5%.
• 📊 Clients are advised that in Trump 2.0, the bond market, particularly the 30-year yield hitting 5%, may force the administration to back off aggressive policies.

Trump's Trade Policy and Election Strategy

• 🎯 The administration's primary goal appears to be accumulating commitments for purchases and market access from other countries to frame as trade wins for President Trump's re-election campaign.
• 🗣️ Trump is perceived to be more focused on racking up numbers of new commitments than on the actual tariff rates.
• ⚖️ A willingness to be aggressive on trade policy may be tempered by the current high bond yields, suggesting a potential push to find agreeable solutions.