Senate Passes Major Spending Deal, but Partial Government Shutdown Starts Tonight

Sen. Lindsey Graham held up passage of the spending package.
Reuters
By Yuval Rosenberg and Michael Rainey

Happy Friday! The Senate just closed out a dramatic week by passing a package of five full-year funding bills and a two-week stopgap extension for the Department of Homeland Security. But the bills won't stop parts of the government from shutting down at midnight. Here's what you need to know.

Senate Passes Major Spending Deal, but Partial Government Shutdown Starts Tonight

The Senate on Friday night passed a package of bills funding a broad range of federal departments and agencies through September along with a two-week stopgap extension of current funding for the Department of Homeland Security, buying more time for talks on Democratic demands for changes to the Trump administration's immigration enforcement tactics.

But the Senate's 71-29 vote comes too late to avoid at least a brief funding lapse - and a shutdown - for a broad swath of the federal government, including the Departments of Defense, State, Treasury, Health and Human Services, Labor, Education, Transportation, and Housing and Urban Development. Current funding for agencies covered by the spending package expires at midnight and the House, which will need to approve the spending package, won't be back from its recess until next week.

Faced with opposition from conservative hardliners, Speaker Mike Johnson reportedly said Friday that he plans to vote on the spending bills under a suspension of House rules, meaning that a two-thirds majority will be needed for passage and a large number of Democratic votes will have to help carry the bill over the finish line.

Some late Senate snags: Senate Democrats had reached a deal with the White House on Thursday to pass the rest of this year's spending bills except for the one for DHS. But plans to vote on that deal Thursday night required unanimous agreement to speed consideration and were instead delayed by objections from Sen. Lindsey Graham of South Carolina and others, even after President Trump had publicly endorsed the agreement and urged both parties to vote for it.

Graham called the bipartisan agreement "a bad deal." His hold on the package forced the Senate to adjourn until Friday, when leaders scrambled to find a path forward.

In a Friday speech on the Senate floor, Graham demanded eventual votes on a bill to criminalize the actions of state and local officials in "sanctuary cities" who fail to help enforce federal immigration laws. He also sought to keep federal investigators from accessing the phone records of congressional lawmakers without notifying them. The House had inserted a provision into the spending package repealing a measure passed last year that would allow senators whose phone records were obtained without their knowledge, including Graham, to get six-figure payouts from the government. Graham said he had an agreement with the Ethics Committee that would keep him from benefiting financially.

Some Democrats also demanded amendment votes. In the end, Senate Majority Leader John Thune locked in a package of seven amendment votes leading up to final passage of the funding package.

The short-term funding for DHS, if approved by the House, would buy time for further negotiations over the Trump administration's immigration crackdown, including Democratic demands for a ban on roving patrols by federal officers, increased use of warrants, a ban on agents wearing masks and a requirement that they wear body cameras.

Trump Picks Kevin Warsh as Next Fed Chair

President Trump on Friday named former Fed Governor Kevin Warsh as his pick to lead the Federal Reserve when Jerome Powell's term ends in May.

"I am pleased to announce that I am nominating Kevin Warsh to be the CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM," Trump wrote on his social media platform. "I have known Kevin for a long period of time, and have no doubt that he will go down as one of the GREAT Fed Chairmen, maybe the best."

Reviewing his educational and career achievements, which include graduating from Harvard Law School and working in government and banking, Trump added that Warsh is the kind of "central casting" figure he so admires.

In addition to Warsh, Trump also considered National Economic Council Director Kevin Hassett, Fed Governor Christopher Waller and BlackRock executive Rick Rieder for the position, and said they all would have been "outstanding" in the job. Trump noted that Hassett had been the leading candidate at one point but had done "such an outstanding job working with me and my team at the White House, that I just didn't want to let him go."

"[A]s the expression goes, 'if you can't do better, don't try to fix it!'" Trump said.

A dovish turn: Currently affiliated with the conservative Hoover Institution, Warsh served as a member of the Federal Reserve Board of Governors from 2006 to 2011 and was in the running for the top position at the central bank in 2017, during Trump's first term. Warsh had a reputation as an inflation hawk during the Obama administration and was critical of the quantitative easing that occurred in response to the financial crisis in 2009. But he has recently changed his tune with dovish calls for lower interest rates that match Trump's position on the issue.

Just where Warsh lands on interest rates will be of great interest, with potentially significant implications for economic growth and inflation, though the assumption is that his recent dovish turn played a key role in winning Trump's favor. "It's reasonable to assume that he told the President he favors reducing interest rates today, otherwise he would not have been nominated," Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said in a note Friday, per CNN.

At the same time, Warsh may not want to be seen as merely a Trump loyalist. "Our instincts tell us Mr. Warsh will be more preoccupied with how history will view his record than with continuing to pander to the President," Tombs added.

Michael Feroli, chief U.S. economist at JPMorgan Chase, said that Warsh could adjust his stance over time. "The two big questions are who's the real Kevin Warsh and does that evolve?" he said, per Bloomberg. "I presume at the outset he is going to be dovish, but does that persist as we move forward a year or two or more?"

Political hurdles: Warsh will need to be confirmed by the Senate Banking Committee, and the hearings on his nomination could center on the question of his independence. Trump has publicly battled with the current Fed chief over interest rate policy - a battle that includes hurling insults and accusations of fraud, salted with threats of firing and indictment - while making it clear that he wants much lower interest rates. Trump's pressure campaign is seen by some as an improper effort to interfere politically with the central bank, which is designed to be insulated from day-to-day political pressures.

Republican Sen. Tom Tillis, who sits on the Banking Committee, said Friday that he will oppose any and all Fed nominations until the threats against Powell, which include an ongoing criminal probe, are resolved.

"Kevin Warsh is a qualified nominee with a deep understanding of monetary policy," Tillis said in a statement. "However, the Department of Justice continues to pursue a criminal investigation into Chairman Jerome Powell based on committee testimony that no reasonable person could construe as possessing criminal intent. Protecting the independence of the Federal Reserve from political interference or legal intimidation is non-negotiable."

Democratic Sen. Mark Warner, who also sits on the Banking Committee, expressed more fundamental doubts about Warsh's ability to act independently. "It is difficult to trust that any Chair of the Federal Reserve selected by this president will be able to act with the independence required of the position," Warner said.

Sen. Elizabeth Warren, the senior Democrat on the Banking Committee, said Warsh's nomination must be seen in light of Trump's long-running effort to gain control of the nation's central bank. "Donald Trump said anybody who disagrees with him will never be Fed Chairman," she said in a statement. "Former Fed Governor Kevin Warsh - who cared more about helping Wall Street after the 2008 crash than millions of unemployed Americans - has apparently passed the loyalty test."

What comes next: A confirmation hearing by the Senate Banking Committee is expected to take place in March, with a vote in the full chamber coming in April. If confirmed, Warsh would take the reins at the Fed in May.

Number of the Day: $10 Billion

President Trump sued the Internal Revenue Service and the Treasury Department on Thursday, seeking $10 billion over a claim that the tax agency failed to prevent the leak of his tax returns during his first term.

The lawsuit, filed in a U.S. district court in Florida by the president, his sons Don Jr. and Eric, and the Trump Organization, revolves around a leak of Trump's tax information to news outlets by an IRS contractor, Charles Littlejohn, who is now serving a five-year prison sentence for taking the confidential files of Trump and others.

The suit claims that the IRS and Treasury "have caused Plaintiffs reputational and financial harm, public embarrassment, unfairly tarnished their business reputations, portrayed them in a false light, and negatively affected President Trump, and the other Plaintiffs' public standing."

The leak led to 2020 reports that Trump paid just $750 in federal income taxes in 2016 and 2017 and had not paid any income taxes in 10 of 15 years largely as the result of claiming large financial losses. Other reports based on the leaks highlighted the tax details of wealthy Americans such as Amazon.com founder Jeff Bezos and billionaire Warren Buffett.

"Under laws written to protect the wealthy from public scrutiny, that leak was illegal, but it revealed information that Americans deserved to have," Amy Hanauer, executive director of the left-leaning Institute on Taxation and Economic Policy, said in a statement. "It confirmed our worst fears about a tax system that often allows the very best-off individuals to pay a vastly smaller share of their income in federal taxes than the rest of us pay. And it revealed that the wealthiest U.S. president in history, Donald Trump, who broke long-standing precedent by refusing to disclose his tax and financial details, had long avoided paying the taxes funding the government over which he presided."

Hanauer and others have pointed out the extraordinary conflicts involved in the unprecedented move by a sitting president to sue agencies that he oversees and which are led by his appointees. "Even if an unbiased judge rightly rejects Trump's demands as preposterous, there is a great danger that the IRS would 'agree' to settle and pay out an enormous sum of taxpayer dollars to Trump," Hanauer said. "To be clear, many billionaires had their tax returns leaked in this incident but none of them, aside from Mr. Trump and his family, are currently seeking monetary damages from the IRS."

The Treasury Department earlier this week canceled $21 million in contract with consulting firm Booz Allen Hamilton, where Littlejohn worked, over the leak.

Quote of the Day

"As an international organization, we know that the treatment of journalists is an indicator of the condition of a country's democracy. The United States is doing poorly."

  • Katherine Jacobson of the Committee to Protect Journalists, in response to the Trump administration's arrest of journalist Don Lemon, who was charged with conspiracy and interfering with the First Amendment rights of worshippers in connection with his coverage of a January 18 protest against immigration enforcement at a St. Paul, Minnesota, church.

Attorney General Pam Bondi touted the arrests in a video posted on social media: "Make no mistake. Under President Trump's leadership and this administration, you have the right to worship freely and safely," she said. "And if I haven't been clear already, if you violate that sacred right, we are coming after you."

Another independent journalist, Georgia Fort, and two protest participants were also arrested. Journalism groups and civil rights activists criticized the arrests, warning that the administration was attacking the First Amendment.

"Jailing a journalist for doing their job is dangerous - not only for press freedom, but for the public's right to know," National Press Club President Mark Schoeff, Jr. said in a statement. "When reporters risk arrest for documenting events of public interest, the result is fewer witnesses, less accountability, and a more uninformed public."

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