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Donald Trump’s swaggering tour of the Middle East ended with a sobering dose of domestic reality on Friday as the president headed home to a credit rating downgrade, gloomy data on consumer sentiment and challenges to his flagship tax bill. Over the past two weeks, Trump has seen his approval ratings improve and equity markets bounce back strongly after pausing some of the more aggressive import tariffs he announced in early April. Labour market and inflation data has also been encouraging, defusing fears that a sharp slowdown or even a recession could be imminent. But while the president was aboard Air Force One en route to Washington from Abu Dhabi, Moody’s stripped the US of its top-notch triple-a credit rating on concerns about rising levels of government debt.“For those looking for a signpost to tell us when to stop adding to our national debt, they should look no further than Moody’s downgrade,” said Michael Peterson, chief executive of the Peter G Peterson Foundation. “It’s unacceptable for a great country like America to harm its own credit rating.”Earlier in the day, the University of Michigan’s closely watched survey of consumer sentiment showed confidence had dropped to its second-lowest level on record, as people’s expectations of inflation soared. And shortly afterwards, Trump suffered a setback on Capitol Hill when conservative hardliners on the US House budget committee voted against his biggest domestic legislative goal: a sweeping bill to extend tax cuts he enacted in 2017 and enact deep government spending cuts. The tricky politics are a comedown from the multibillion dollar economic partnership pacts and investment deals signed during the president’s tour of Saudi Arabia, Qatar and the United Arab Emirates this week.Accompanied by phalanx of business leaders led by Elon Musk as well as top cabinet officials including Scott Bessent, the US Treasury secretary, and Howard Lutnick, the commerce secretary, a buoyant Trump saw the lucrative agreements as a vote of confidence in the American economy. “It’s the new industrial revolution, and it’s driven by Donald Trump and it’s going to be amazing jobs for Americans,” Lutnick told Fox News in an interview from the UAE. Back in Washington, Trump is counting on passage of what he calls the “big beautiful bill” to ease some of the hit to households and businesses from the president’s new tariffs — and restore confidence in his stewardship of the economy.The fate of the tax bill is increasingly taking centre stage in Washington as Trump and Republican leaders in the lower chamber of Congress rally their slim majority to approve the legislation. But on Friday there was a big setback to its progress when it failed to advance in the House budget committee. South Carolina Republican Ralph Norman, who was one of the group that opposed the bill, said: “If we’re going to continue to have . . . able-bodied Americans getting checks, illegals getting checks, subsidies that go to corporations that shouldn’t get them — I’m out.” Soon after the vote, Trump posted on X: “Republicans MUST UNITE behind, ‘THE ONE, BIG BEAUTIFUL BILL!’“. “We don’t need ‘GRANDSTANDERS’ in the Republican Party. STOP TALKING, AND GET IT DONE!”.Meanwhile, moderate Republicans in battleground districts are insisting on more generous tax deductions for state and local tax payments, know as “Salt”, another sticking point that the president will have to find a way through. Even if the deadlock is broken on Capitol Hill, fiscal hawks have warned that the implications for US public finances could be disturbing. The Committee for a Responsible Federal Budget, a bipartisan group, warned on Friday that the legislation would add $3.3tn to US debt over a decade, and risks spooking bond investors in a similar way to the UK budget crisis of 2022. “The US’ current fiscal situation is worse than the United Kingdom’s was, and the deficit impact of the package currently under consideration is even larger than the Truss package. The markets may not take too kindly to this,” the CRFB said in a post. Friday’s dire consumer sentiment data did not reflect the impact of the agreement by the US and China in Switzerland at the beginning of the week to de-escalate their trade war and bring down the tit-for-tat tariffs they had slapped on each other since early April. But Walmart, the world’s largest retailer, warned this week that it would have to raise prices in its stores despite the US-China détente, and economists said the faltering consumer sentiment was an additional sign that anxiety about Trump’s trade policies remains high. A polling average by RealClearPolitics this week found that 50.1 per cent of Americans disapprove of Trump’s performance as president, while 46.1 per cent approve.While the 4 percentage point deficit is narrower than the 7.1 point deficit in approval he had at the end of April, it’s a big drop from the 6 percentage point advantage he posted in January at the start of his second term. “Fears over the inflationary impacts of tariffs remained the largest source of pessimism for consumers, even as recent talks to roll back some tariffs led to a substantial recovery for equity markets,” Oxford Economics wrote in a note on Friday. It added: “Consumers have also become more worried about their personal finances and are expecting a weakening in income growth.”Additional reporting by George Steer More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The world’s top poultry exporter Brazil said on Friday it had detected avian flu on a commercial farm for the first time, leading its biggest customer China to suspend chicken imports.Brazil, which makes up about a quarter of global poultry exports, was the last big exporter unaffected by the outbreak. The virus began in the US and then swept into Europe, leading to sharp rises in egg and poultry prices and straining household budgets.Brazil’s agriculture minister Carlos Fávaro said the Chinese trade ban would last 60 days, but the government was working to contain the virus and hoped the restrictions would be lifted sooner.“If we manage to eliminate the outbreak, we think it is possible to re-establish a normal trade flow before the 60 days are up,” Fávaro told CNN Brasil.Brazil had been enjoying “a distinct advantage” in reaching markets that had restricted trade with countries affected by the disease, USA Poultry and Egg Export Council chief executive Greg Tyler said last week. Bird flu had had “a devastating impact” on global exports as a whole, he said.Brazil exported $9.46bn of poultry in the year to March, with about 14 per cent going to China, according to The Observatory of Economic Complexity. Other destinations include the UAE, Japan, Saudi Arabia and Mexico.The virus was identified on a breeding facility in the southernmost state of Rio Grande do Sul, where state authorities said an investigation would take place within a 10km radius of the property.The US has been forced to cull 31mn birds, incurring multibillion-dollar losses, while leading European producer Poland has killed more than 10mn.Latin America’s largest nation found cases of avian flu among wild birds in 2023. Its agriculture ministry stressed that the disease was not transmitted by the consumption of poultry, meat or eggs.“The risk of human infection by the avian influenza virus is low and, in most cases, occurs among handlers or professionals who have intense contact with infected birds,” it added.China had stricter protocols for such cases compared with other countries, Fávaro said, adding that the likes of Japan and Saudi Arabia only ban produce from the state or municipality hit by the virus, not the whole country. Shipments of chicken already in transit would not be affected, he said.Globally, the number of new bird flu outbreaks surged by 91 per cent from January to February 2025, reaching 980.China’s import restriction occurs just days after a state visit to Beijing by President Luiz Inácio Lula da Silva, during which Brazilian authorities announced R$27bn ($4.7bn) of investments by Chinese companies.The country is Brazil’s largest trading partner and a voracious consumer of its commodities, from crude oil and iron ore to soyabeans and beef.BRF, the world’s largest poultry exporter, did not immediately respond to a request for comment. Protein company JBS referred the Financial Times to the Brazilian Animal Protein Association, which said the situation was “under control”. More

The index of consumer sentiment dropped to 50.8, down from 52.2 in April and hitting its second-lowest reading on record.
The majority of the survey was completed before the U.S. and China announced a 90-day pause on most tariffs between the two countries.
The trade situation appears to be a key factor weighing on consumer sentiment.

A woman walks in an aisle of a Walmart supermarket in Houston, Texas, on May 15, 2025.
Ronaldo Schemidt | Afp | Getty Images

U.S. consumers are becoming increasingly worried that tariffs will lead to higher inflation, according to a University of Michigan survey released Friday.
The index of consumer sentiment dropped to 50.8, down from 52.2 in April, in the preliminary reading for May. That is the second-lowest reading on record, behind June 2022.

The outlook for price changes also moved in the wrong direction. Year-ahead inflation expectations rose to 7.3% from 6.5% last month, while long-term inflation expectations ticked up to 4.6% from 4.4%.
However, the majority of the survey was completed before the U.S. and China announced a 90-day pause on most tariffs between the two countries. The trade situation appears to be a key factor weighing on consumer sentiment.
“Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” Joanne Hsu, director of the Surveys of Consumers, said in the release.
Inflation expectations are closely watched by investors and policymakers. Federal Reserve Chair Jerome Powell has said the central bank wants to make sure long-term inflation expectations do not rise because of tariffs before resuming rate cuts.
Even with the pauses on import levies against China and other countries, the effective tariff rate for goods entering the United States is still significantly higher today than it was before President Donald Trump’s inauguration in January. Economists on both sides of the aisle mostly agree that tariffs could lead to a short-term rise in prices, though the extent of that increase and whether it would fuel long-term inflation remains unclear.

Recent inflation data has not shown a tariff bump, as both the consumer price index and producer price index for April came in below consensus estimates.
A final consumer sentiment index for the month is slated to be released on May 30, and will likely be closely watched to see if the tariff pause led to an improvement in sentiment.

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Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldRepublicans are souring on Donald Trump’s policies, pushing a closely watched measure of consumers’ confidence in the US economy to its second-lowest level on record. The University of Michigan’s overall index of consumer sentiment tumbled to 50.8 in May, from 52.2 the previous month, while the expectations figure fell to 46.5 amid mounting fears that people could soon start to lose their jobs.The poll also showed people’s expectations of inflation a year from now soared from 6.5 per cent to 7.3 per cent — its highest level since 1981 — as people bet that the Trump administration’s trade war would lead to a rise in prices.Longer-term inflation expectations also edged up from 4.4 per cent to 4.6 per cent, as registered Republicans became increasingly concerned that tariffs would have an enduring impact on American prices.“The flag over inflation expectations is bright red,” said Carl Weinberg, chief economist at High Frequency Economics.The elevated expectations shown in Friday’s survey come days after data showed inflation hit a four-year low of 2.3 per cent in April. Figures on Thursday showed that producer prices tumbled last month, but that businesses’ profit margins were being squeezed as they absorb costs associated with tariffs.The survey showed consumer sentiment for registered Republicans ticked down from 90.2 to 84.2, the lowest reading since November. An index tracking their economic expectations ticked down from 95.9 to 90.8, another six-month low.While registered Democrats have long been negative on the president’s economic policy agenda, the poll indicates that the chaos following “liberation day”, which wiped trillions off global capital markets, also cost Trump support among his own party.Some content could not load. Check your internet connection or browser settings.The readings were taken between April 22 and May 13, meaning that most respondents will not have factored in the impact of the détente between the US and China several days ago.The truce lowered tariffs on one of the US’s biggest trading partners from 145 per cent to 30 per cent until mid-August. Even if a permanent deal between Washington and Beijing were reached, Americans could still end up paying more for goods. Walmart chief executive Doug McMillon warned that the world’s largest retailer was not “able to absorb all the pressure” and that “higher tariffs will result in higher prices”.The pollsters said the final release would contain more information on whether the May 12 pause on China tariffs affected people’s expectations. “It appears that households were more alarmed by the tit-for-tat escalation in tariffs with China than they were soothed by the reciprocal tariff pause for other countries or the drop back in energy prices,” said Alexandra Brown, North America economist at Capital Economics. “Given the latest deal with China to reverse most of those prohibitively high tariffs, however, sentiment should soon rebound.” More

Andersen Ross Photography Inc | Digitalvision | Getty Images

Wall Street is warning that the U.S. Department of Education’s crack down on student loan repayments may take billions of dollars out of consumers’ pockets and hit low income Americans particularly hard.
The department has restarted collections on defaulted student loans under President Donald Trump this month. For first time in around five years, borrowers who haven’t kept up with their bills could see their wages taken or face other punishments.

Using a range of interest rates and lengths of repayment plans, JPMorgan estimated that disposable personal income could be collectively cut by between $3.1 billion and $8.5 billion every month due to collections, according to Murat Tasci, senior U.S. economist at the bank and a Cleveland Federal Reserve alum.
If that all surfaced in one quarter, collections on defaulted and seriously delinquent loans alone would slash between 0.7% and 1.8% from disposable personal income year-over-year, he said.
This policy change may strain consumers who are already stressed out by Trump’s tariff plan and high prices from years of runaway inflation. These factors can help explain why closely followed consumer sentiment data compiled by the University of Michigan has been hitting some of its lowest levels in its seven-decade history in the past two months.
“You have a number of these pressure points rising,” said Jeffrey Roach, chief economist at LPL Financial. “Perhaps in aggregate, it’s enough to quash some of these spending numbers.”
Bank of America said this push to collect could particularly weigh on groups that are on more precarious financial footing. “We believe resumption of student loan payments will have knock-on effects on broader consumer finances, most especially for the subprime consumer segment,” Bank of America analyst Mihir Bhatia wrote to clients.

Economic impact

Student loans account for just 9% of all outstanding consumer debt, according to Bank of America. But when excluding mortgages, that share shoots up to 30%.
Total outstanding student loan debt sat at $1.6 trillion at the end of March, an increase of half a trillion dollars in the last decade.
The New York Fed estimates that nearly one of every four borrowers required to make payments are currently behind. When the federal government began reporting loans as delinquent in the first quarter of this year, the share of debt holders in this boat jumped up to 8% from around 0.5% in the prior three-month period.
To be sure, delinquency is not the same thing as default. Delinquency refers to any loan with a past-due payment, while defaulting is more specific and tied to not making a delayed payment with a period of time set by the provider. The latter is considered more serious and carries consequences such as wage garnishment. If seriously delinquent borrowers also defaulted, JPMorgan projected that almost 25% of all student loans would be in the latter category.
JPMorgan’s Tasci pointed out that not all borrowers have wages or Social Security earnings to take, which can mitigate the firm’s total estimates. Some borrowers may resume payments with collections beginning, though Tasci noted that would likely also eat into discretionary spending.
Trump’s promise to reduce taxes on overtime and tips, if successful, could also help erase some effects of wage garnishment on poorer Americans.
Still, the expected hit to discretionary income is worrisome as Wall Street wonders if the economy can skirt a recession. Much hope has been placed on the ability of consumers to keep spending even if higher tariffs push product prices higher or if the labor market weakens.
LPL’s Roach sees this as less of an issue. He said the postpandemic economy has largely been propped up by high-income earners, who have done the bulk of the spending. This means the tide-change for student loan holders may not hurt the macroeconomic picture too much, he said.
“It’s hard to say if there’s a consensus view on this yet,” Roach said. “But I would say the student loan story is not as important as perhaps some of the other stories, just because those who hold student loans are not necessarily the drivers of the overall economy.”

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