The clock is ticking on a government shutdown which will occur without budget action by Congress at midnight on October 1. Last week saw more frustration from Republicans as the House was unable to make any headway, and in the Senate a handful of Republicans slowed progress on a so-called minibus bill that funded Agriculture, Transportation, HUD, FDA, and military construction. However, the first vote to move the minibus spending bill forward passed with a large bipartisan majority of 85 to 12, which was a positive signal.
Over the weekend two Republican groups in the House, the conservative House Freedom Caucus and the more moderate Main Street Caucus announced they had reached an agreement on a CR that if passed would postpone a government shutdown until October 31 giving Congress 30 more days to act on the 12 budget bills. The House Republican proposal would include a 30 day CR, most of the provisions in a previously House passed border security bill HR 2, and a one percent cut in government spending from the FY 2023 levels. However, the Defense Department, Veteran programs and FEMA emergency funding would be exempt from the cuts meaning that other areas of government could see discretionary spending cuts of up to 8%. The Republican proposal would not include the White House request for new funding for FEMA and increased aid for Ukraine. This reflects the fact support for Ukraine is slipping among conservative House Republicans.
Earlier this year the Republican border bill passed the House without a single Democratic vote hence its inclusion will make a bipartisan House vote on the new CR package impossible. Additionally, some of the most conservative Republicans released statement overnight that they didn’t support any CR and are demanding cuts in the regular order 12 spending bills. These conservatives felt betrayed when the Speaker negotiated a debt ceiling and budget bill earlier in the year with Democrats and the White House. That agreement passed the House on a vote of 314 to 117, and all 117 no votes came from conservative Republicans. Speaker McCarthy can only lose four Republicans, and at this point it is not clear if he can muster the 218 votes that will be needed to pass the CR package.
On the Senate side progress on spending bills had been running more smoothly until late on Thursday some of the dissenting Republican Senators threw a roadblock in the process by objecting to a Unanimous Consent agreement to move forward with a so-call minibus spending bill. With the cumbersome Senate rules allowing unlimited debate much of the legislation moves through the Senate under carefully constructed bipartisan agreements without votes by Unanimous Consent, but Senator Ron Johnson objected to moving ahead with multiple departments in one minibus bill. Instead he insisted on breaking up the minibus legislation and having separate debate and votes on each department.
Over the weekend Leaders Schumer and McConnell and their staffs have been talking about alternative paths and likely force votes on the spending legislation as an effort to demonstrate the Senate’s willingness to avoid a government shutdown.
Ukraine funding is a major issue for a broad bipartisan group of Senators who overwhelmingly support more money for Ukraine. These Senators have made clear that if the House would pass a CR that didn’t include Ukraine money the Senate would add the money and send the CR back to the House with the Ukraine money included.
The war in Ukraine and US support will be front and center this week as Ukrainian President Zelensky comes to the US to speak at the UN General Assembly and then to travel to Washington for talks with both the Administration and Congress. Leaders Schumer and McConnell have reportedly arranged a bipartisan briefing from the Ukrainian President, a session that will undoubtedly strengthen support for Ukraine’s war against Russia.
Over the weekend former President Trump weighed in saying that a shutdown would be acceptable if spending isn’t reduced. The focus this week will be on Speaker McCarthy and whether or not he can cut deals to get 218 Republican votes on the new CR compromise.
FOMC
The Fed’s Federal Open Markets Committee (FOMC) meets this week and announces its rate decision at 2:00 on Wednesday. At 2:30 Chair Powell will talk to the press in his regularly scheduled post rate decision presser.
The minutes from the last meeting demonstrated that divisions are beginning to form within the policy making Committee; Chair Powell wants to keep the Committee as united as possible and wants to be on the prevailing side if there is any dissent. The consensus appears to point to no increase at this meeting, but markets can often be as interested in the Chair’s comments after the meeting as in the decision itself.
