Good evening. President Joe Biden held a closely watched meeting Wednesday with Israeli Prime Minister Benjamin Netanyahu on the sidelines of the U.N. General Assembly in New York. Attorney General Merrick Garland endured hours of tense questioning by the House Judiciary Committee, with Republicans pressing him on politically contentious cases. The Federal Reserve held interest rates steady, as expected. And the clock is still ticking toward a possible government shutdown at the end of the month.
Republicans Scramble to Find a Path Forward
With intraparty tensions running high, House Republican lawmakers are searching for a path forward on a federal funding plan that would avoid a government shutdown in just 10 days’ time.
After House leaders were forced to scrap a procedural vote Tuesday on a month-long spending bill Republicans spent the day trying to hash out a new plan that would unite their fractious conference, but sharp disagreements remained as frustrated lawmakers headed into a 4 p.m. meeting.
Republicans have reportedly been working on a revised stopgap bill that would include even steeper cuts to non-defense spending and possibly establish a commission to examine the nation’s long-term budget challenges. House Republicans had called for a bipartisan fiscal commission as part of the 2024 budget resolution released on Tuesday and passed out of the Budget Committee today. (For those interested in more on the various spending levels being proposed for the House stopgap, Roll Call has some details here.)
Speaker Kevin McCarthy reportedly pitched a plan for a short-term funding bill based on a $1.471 trillion discretionary spending cap, along with a proposal for a commission to address the debt and provisions addressing immigration issues. Government funding in 2024 would be set at $1.526 trillion.
Among the other options reportedly being considered: A process by which the House would take up many proposals and the one with the strongest support would get sent to the Senate. “I like a lot of ideas to come up and have the best idea win,” McCarthy told reporters Tuesday.
However, any plan that can win the support of Republican hardliners would likely be doomed to fail — or to be heavily revised — in the Senate, meaning that House Republicans would again have to try to overcome their internal divisions or allow the government to shut down.
A bipartisan group of centrists, meanwhile, is working on a fallback plan that reportedly may try to win the backing of a majority of House lawmakers by combining border security measures with supplemental funding for Ukraine and disaster aid.
“Me and a handful of others think it’s time for a bipartisan solution, and you can’t trust these five or 10 people to support anything,” Republican Rep. Don Bacon of Nebraska told The Hill, referring to Republican hardliners. “So the right answer has always been all along to go bipartisan because you got to do it anyway with the Senate.”
The bipartisan approach may also bypass McCarthy. “Some Republicans are seriously considering getting behind a shell bill that could, as soon as next week, serve as the vehicle that allows moderates to supersede McCarthy’s control of the House floor and force a vote to keep the government open,” The Washington Post reported Tuesday evening. “Such a move would keep McCarthy’s fingerprints off whatever bill is ultimately voted on in the House. But it would undoubtedly irritate colleagues who have said that passing any bill with Democratic votes would immediately trigger a motion to remove McCarthy from the speakership.”
Any deal involving Democrats would likely be a last-ditch effort to avoid a shutdown given that McCarthy’s Republican critics are still threatening to call for his ouster if he turns to the other party. “If Speaker McCarthy relies on Democrats to pass a continuing resolution, I would call the Capitol moving truck to his office pretty soon because my expectation would be he’d be out of the speaker’s office quite promptly,” Rep. Matt Gaetz told reporters Wednesday.
A reporter on Tuesday found what appeared to be a motion to remove McCarthy drafted for Gaetz in a Capitol bathroom, and some Republicans are reportedly already considering who they might back to succeed McCarthy as speaker.
The bottom line: House Republicans are trying to find a way out of the hole they’ve dug for themselves, but even if they can find a way, the solution will likely be short-lived. Any funding agreement that emerges will at best just give McCarthy a starting point to negotiate with the Senate over how to avoid a looming shutdown.
Quote of the Day
“If those jagoffs in the House stop trying to shut our government down, and fully support Ukraine, then I will save democracy by wearing a suit on the Senate floor next week.”
– Democratic Pennsylvania Sen. John Fetterman, known for wearing shorts and casual shirts, in a statement issued Wednesday. Fetterman’s offer comes after Senate Majority Leader Chuck Schumer set off a bit of a kerfuffle over this past weekend by relaxing the Senate dress code. In a letter to Schumer Tuesday, Senate Republicans said the change “disrespects the institution we serve and the American families we represent.”
The Fed Leaves Rates Unchanged, but Another Increase Could Be Coming
The Federal Reserve held steady on Wednesday in its battle against inflation while signaling that another interest rate could be coming later this year and rates could stay higher for longer than some analysts expect.
The Federal Open Market Committee announced that it would maintain its benchmark interest rate in a range between 5.25% and 5.50%. But a majority of committee members (12 of 19) said they expect to raise rates again this year, and projections for next year show that committee members expect the key rate to be 5% at the end of 2024, suggesting that officials think there will be only two rate cuts next year, with rates remaining relatively high throughout.
At a press conference following the announcement, Fed Chair Jerome Powell told reporters that while there clearly has been progress in the effort to reduce inflation, he wants to see “convincing evidence” that the central bank has gained the upper hand before deciding that interest rates are high enough – or, as he put it, “sufficiently restrictive.”
“The process of getting inflation sustainably down to 2% has a long way to go,” Powell said. “We’ve seen progress, and we welcome that, but we need to see more progress” before declaring that the Fed has done its job.
At the same time, Powell said that he thinks the central bank is “fairly close” to where it needs to be.
What the experts are saying: Noting that the latest projections from Fed officials show a median unemployment rate in 2023 of 3.8%, down from 4.1% previously, University of Michigan economist Justin Wolfers said that the Fed “is feeling more optimistic” about the course of the economy. Wolfers also pointed out that the Fed has reduced its unemployment projection for 2024-2025 to 4.1%, down from 4.5% previously, and lowered its estimate for core inflation in the fourth quarter of 2023 to 3.7%, down from 3.9% previously.
Joseph Brusuelas, chief economist at RSM, was feeling optimistic, too, as he read the tea leaves of the Fed’s announcement. “No rate hike & Fed is likely done,” he said on social media. “Soft landing is baseline forecast and two rate cuts in the forecast for 2024.”
The Washington Post’s Heather Long picked up on the soft-landing theme, saying that the Fed’s outlook is consistent with that possibility, in which inflation returns to something like normal without a recession occurring. “The Fed is starting to believe in a 'soft landing',” she wrote – despite Powell’s effort to avoid using that framing in the press conference today. Asked if a soft landing is now expected, Powell said, “No, no, I would not do that. But I do think it is possible.”
Still, a stronger-than-expected economy could be what convinces the Fed to raise rates again one more time. “A resilient US economy and high consumer spending over the next several months will likely prompt the Fed to raise rates again heading into the new year,” said Frank Lietke, executive director at Ally Invest Securities.
The bottom line: The Fed is sticking to its current path while remaining open to changes ahead, depending on what the data says. But Fed officials are growing more optimistic in their projections for the economy, even as they expect to hold interest rates higher for longer into next year.
Fiscal News Roundup
- A Federal Government Shutdown Looks More and More Likely: What to Know – Washington Post
- Bipartisan McCarthy Bailout Talks Gaining Steam Thanks to House Chaos – Politico
- Republicans Resigned to Being the Villains in the Inevitable Government Shutdown – Politico
- Republican Anger Grows at GOP Holdouts – The Hill
- Here Are the Five Republicans Who Have Defied McCarthy on Spending – New York Times
- Rick Scott Expecting Deal to Avoid Government Shutdown – The Hill
- Senate Dress Code Spat Continues: Avoid a Shutdown and I’ll Wear a Suit, Fetterman Says – Roll Call
- – Associated Press
- Republicans Defeat Effort to Suspend Senate Rules to Advance Spending Package – The Hill
- IRS Establishes New Pass-Through Division to Tax High Earners – The Hill
- SNAP Benefits Are Increasing Oct. 1: Here’s How Much – The Hill
- Biden Takes Executive Action to Launch Climate Corps – Roll Call
- The Anti-Vaccine Movement Is On the Rise. The White House Is at a Loss Over What to Do About It – Politico
Views and Analysis
- What a Real Leader Might Say to Avoid a Shutdown – Steven Pearlstein, Washington Post
- House Republicans Hang Separately – Wall Street Journal Editorial Board
- Republicans Start to Devour Their Own Over Looming Shutdown – Grace Segers, New Republic
- The Child Care Industry Is on the Cusp of a Crisis – Emily Peck, Axios
- The Hope at the Bottom of the ‘Child Care Cliff’ – Jessica Grose, New York Times
- Winning the Ideas, Losing the Politics – Robert Kuttner, American Prospect
- How States Humiliate Single Parents Who Need Government Assistance – Jack Meserve, Vox
- Can We Put a Price on Climate Damages? – David Wallace-Wells, New York Times