White House Nixes Spending Freeze Memo — but Says Freeze Remains

Trump spoke to reporters Wednesday.

Good evening. Wednesday was another wild news day, as the White House reversed the freeze on grants and loans it announced this week; the Senate held more confirmation hearings for President Trump's nominees, including a contentious session for Robert F. Kennedy Jr.; the Fed announced a rate-cutting pause; and Trump signed the first bill of his second term - the Laken Riley Act.

White House Nixes Spending Freeze Memo - but Says Freeze Remains

After a powerful backlash, the White House on Wednesday rescinded its Monday night memo that temporarily froze trillions of dollars in federal grants and loans. That order created extensive uncertainty about which programs would be affected and widespread fear that many Americans would suffer once it took effect. The freeze prompted immediate legal challenges accusing the administration of an unconstitutional power grab that violated congressional authority on spending.

A federal judge temporarily blocked the freeze Tuesday afternoon, but the confusion remained, with federal lawmakers in both parties - as well as state officials, nonprofits and other organizations that rely on federal funds - still concerned about what the Trump directive meant.

In a terse new memo issued Wednesday, Matthew J. Vaeth, the acting director of the White House budget office, rescinded the prior order. "If you have questions about implementing the president's executive orders, please contact your agency general counsel," Vaeth directed agency leaders.

White House press secretary Karoline Leavitt then posted a clarification: "This is NOT a rescission of the federal funding freeze," she wrote in a post on X. "It is simply a rescission of the OMB memo. Why? To end any confusion created by the court's injunction." Leavitt added that Trump's executive orders regarding federal funding reviews "remain in full force and effect, and will be rigorously implemented." Those prior executive orders targeted "woke ideologies" and halted implementation of the Inflation Reduction Act and Bipartisan Infrastructure Law as well as certain foreign aid funding, among other things.

Leavitt also told reporters that the rescission of the memo should end the court case, and that Trump would be taking more executive action "to end the egregious waste of federal funding."

In afternoon remarks at the White House, Trump sought to defend the freeze and touted the actions he has taken quickly in his new term. He told reporters that he was moving to take control of the Washington bureaucracy and "downscale" the government, including by requiring federal workers to return to offices full-time or face termination.

Trump said the short-term funding pause was "only for us to quickly look at the scams, dishonesty, waste and abuse that's taken place in our government for too long." He said the pause did not affect Social Security, Medicare or Medicaid - though states had seen Medicaid payment portals closed yesterday - and claimed that the media had purposely created confusion around the issue. "We are merely looking at parts of the big bureaucracy where there has been tremendous waste and fraud and abuse," he said. (The confusion was not a media creation. At her Tuesday press briefing, Leavitt could not immediately answer a question about whether Medicaid was affected or not.)

Trump said the process had led his administration to stop $50 million from being sent to Gaza for the purchase of condoms for Hamas - though there is no evidence to support that claim and plenty of reason to be highly skepticalabout it. Trump added a rather bizarre twist, claiming that Hamas has used the condoms "as a method of making bombs." He also said his administration had canceled $181 million in DEI training contracts and paused $1.7 billion in unauthorized payments to foreign organizations, including more than $40 million for the World Health Organization.

Republican Sen. Susan Collins of Maine, chair of the Senate Appropriations Committee, welcomed the Office of Management and Budget's rescission. "While it is not unusual for incoming administrations to review federal programs and policies, this memo was overreaching and created unnecessary confusion and consternation," she said in a statement.

Her Democratic counterpart, Sen. Patty Murray of Washington, called the rescission "an important victory for the American people whose voices were heard after massive pressure from every corner of this country." She warned, though, that the fight was not over. She accused the Trump administration of "sheer incompetence, cruel intentions, and a willful disregard of the law" and said that it "is still illegally withholding funding for communities in red states and in blue states." And she expressed concern about Trump's choice to lead the White House budget office: "Senate Republicans are still intent on confirming Russ Vought, chief architect of Project 2025 as this country's budget director. This is a man who time and again has refused to say he will follow the law."

The bottom line: The White House backtracked after a backlash, but it's clear that Trump and his allies remain intent on carrying out their agenda and instigating a legal fight over the separation of powers and the president's authority to withhold funding appropriated by Congress.

RFK Jr. Struggles to Answer Questions About Medicaid

Appearing before the Senate Finance Committee Wednesday, Robert F. Kennedy Jr. faced stiff questioning from Democrats as he sought to reassure lawmakers that he is the right person to lead the Department of Health and Human Services.

Senators grilled him about his long-running skepticism about vaccines - despite that history, Kennedy insisted he's not "anti-vax," just "pro-safety" - as well as his opinions on abortion and his knowledge of the complexities of the U.S. healthcare system.

Kennedy appeared to be unaware of some of the key details of how Medicaid, which provides health coverage to about 80 million people, functions. Kennedy charged that the premiums and deductibles charged by Medicaid are "too high," but most Medicaid beneficiaries pay little or nothing for their coverage or the services they receive.

Kennedy also said that Medicaid is "fully paid for" by the federal government, but states generally pay for a portion of the total cost.

When asked by Sen. Bill Cassidy, a Louisiana Republican who is also a medical doctor, what he would do to reform Medicaid, Kennedy had little to say beyond general remarks about increasing transparency and accountability. "While other Trump nominees have offered concrete policy proposals - Russell Vought, the nominee to run the Office of Budget and Management, suggested a work requirement for the program in his confirmation hearing last week - Mr. Kennedy described vaguer changes," The New York Times's Sarah Kliff and Reed Abelson write.

A close vote expected: Kennedy left the hearing room to applause and cheers, but his confirmation vote will be close. Emily Olsen of Health Dive reports that three Republicans - Sens. Susan Collins, Lisa Murkowski, and Mitch McConnell - are expected to vote against him, meaning Sen. Cassidy's vote could prove to be decisive.

Trump Lashes Out at Powell as Fed Holds Steady on Rates

The Federal Reserve made no changes in interest rate policy at the conclusion of a two-day meeting Wednesday. The Federal Open Market Committee will hold rates steady in a range of 4.25% to 4.5% as officials maintain a wait-and-see attitude toward the economy and Fed policy.

In a statement, the FOMC said the U.S. economy continues to expand "at a solid pace," while the unemployment rate has "stabilized at a low level in recent months" and the labor market continues to be "solid." Inflation, however, remains "somewhat elevated," above the Fed's 2% target rate.

At a press conference following the conclusion of the meeting, Fed Chair Jerome Powell said that in his view interest rate policy is still restrictive, but not excessively so. He added that Fed officials would like to see further progress in reducing the inflation rate to the central bank's 2% target before making any moves to further ease interest rates. The Fed cut rates at the three previous FOMC meetings, starting in September.

What the experts are saying: Economists expected the Fed to stand pat on rates at the January meeting. Recent economic data continues to demonstrate signs of strength, with healthy consumer demand and wage growth driving prices higher, resulting in inflationary pressure that has proven to be stickier than expected, even as the inflation rate has moved toward the 2% target.

In addition, the Trump administration has promised policy changes including tax cuts and tariffs that could prove to be inflationary, reducing the desirability of additional rate cuts, at least until Fed officials see how the Trump policies play out.

"We don't know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy," Powell said. "We're only just beginning to see and actually are not really beginning to see much. And I think we need to we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be."

Former Fed official Richard Clarida, now an adviser at bond giant Pimco, told The Wall Street Journal that the central bank has two paths ahead of it. On one, the Fed sees additional signs of inflation weakening over the next few months and begins cutting rates again this spring. On the other path, inflation stubbornly refuses to fall further or even picks up again, forcing the Fed to hold rates steady for an extended period.

Investors on Wall Street sold off stocks Wednesday afternoon as they contemplated that second option, with the S&P 500 falling about half a percentage point. But Seema Shah, chief global strategist at Principal Asset Management, told The New York Times that the central bank was doing the prudent thing. "The reality is that the Fed is simply trying to respond to the data and the new administration's policies as they unfold," she said. "At times like these, when government policy - particularly tariff policy - is so uncertain, they do not have a forecasting edge. Keeping policy rates on hold until a clear direction starts to emerge is sensible."

Potential political clashes ahead: A few hours after the Fed announced its decision on rates, President Trump lashed out at Powell and the central bank on his social media platform.

"Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing," Trump wrote. The president added that the Fed had "done a terrible job" regulating the banks, a problem that he vowed the Treasury Department would fix. And he accused the Fed of failing to do its job while it was preoccupied with culture war issues, though it was not clear what events he was referring to. "If the Fed had spent less time on DEI, gender ideology, 'green' energy, and fake climate change, Inflation would never have been a problem. Instead, we suffered from the worst Inflation in the History of our Country!"

Trump's vitriolic response comes less than a week after he hinted that he planned to try to interfere with Fed policymaking. "I'll demand that interest rates drop immediately," Trump told an audience of financiers, politicians and celebrities in Davos, Switzerland, last week, speaking via video.

Trump, who appointed Powell to the top position at the central bank during his first term in office, has clashed with the Fed leader before. In 2019, he accused Powell of holding back the economy by refusing to make larger interest rate cuts - a dynamic that could once again be in play. "The only problem we have is Jay Powell and the Fed," Trump wrote at the time. "He's like a golfer who can't putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don't count on him! So far he has called it wrong, and only let us down."

Powell touched on political issues Wednesday, telling reporters that he had had no contact with Trump since the president's remarks to the Davos audience. "I'm not going to have any response or comment whatsoever on what the president said. It's not appropriate for me to do so," Powell said. "The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work."

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