- Congress has new shutdown deadline of Oct. 1
- Congress and Trump need Budget Resolution agreement
- Debt ceiling creates tough issue
- Fed meets this week
Last week, the House and Senate acted on a six-month Continuing Resolution (CR) that allowed the government to avoid a shutdown Friday at midnight. The result was not without some tension as some Senate Democrats threatened to filibuster the CR and deny Republicans the 60 votes they would need to proceed. However, Senate Democratic Leader Chuck Schumer sensed that a shutdown under President Donald Trump and Musk could be a disaster and agreed to support the CR. The leader was able to get several Democrats to join his effort and the motion to avoid a filibuster passed on a vote of 62 to 38.
The CR keeps most government programs running at their current FY 2024 levels but increases certain categories such as defense, health and immigration, while authorizing reductions of approximately $13 billion in other spending. However, on Oct. 1, the beginning of the new fiscal year will eventually come to Washington, and Congress will need to try again to pass a budget. Democrats will likely try to put in language requiring the administration to spend all monies approved by Congress and Republicans in Congress. The White House will again oppose any such language.
Reconciliation and debt ceiling
The next two big issues for Washington are the Republican effort to pass the president’s program and renew the Trump expiring tax cuts in a Budget Reconciliation package and Congress must also increase the national debt ceiling.
Budget Reconciliation is the tool that Congress can use to make changes in law that impact the budget. The rules for a Reconciliation Bill require that every item must have a budget impact. The items can have either a revenue or spending impact. The first step in the Reconciliation process is for Congress to approve a Budget Resolution that gives the broad outline for the eventual bill. This year, the House and Senate have passed Budget Resolutions, but they are very different. The Senate plans a two-bill approach to put the non-tax quick action ideas such as immigration, energy, and defense in the first bill, and renewing the Trump tax plan in the second bill to be considered later in the year. The House Resolution is for one huge bill that would pass the program related items, extend the Trump tax cuts, and increase the debt ceiling by $4 trillion.
For the process to begin, both Chambers must pass identical Budget Resolutions, and the hope is that with the CR completed Congress and the White House can find common ground. Trump has power over his Congressional party that is unparalleled in recent history. In my view, resolving the strategy will require his personal intervention.
While the Reconciliation package is a high priority for both the Republican Congress and the White House it is not a “must pass” bill. The Treasury has notified Congress that at some point in the coming months, the government will need an increase in the current debt ceiling. Trump wants to end the debt ceiling, which in my view is the best policy. This issue has been a problem since the days long ago when I worked in the House and Senate. The speaker included it in the House Reconciliation package to get the most conservative Republicans to support the increase. The most conservative Republicans have said they can only vote to increase the debt ceiling if the proposal is tied to big spending cuts. There are some conservative Republicans who have never voted to increase the debt ceiling.
Obviously, the failure to increase the ceiling has significant financial consequences; it must be increased. This is going to be a very tough issue for the Congressional leadership and the White House. Estimates are that the ceiling will be hit in June. No definite date has been set by the Treasury, but it is a big deal.
Fed Meets
This week, the Federal Reserve’s Open Markets Committee meets, and on Wednesday, the central bank issues its official statement on interest rates, and at 2:30 p.m. ET Fed Chair Jerome Powell holds a press conference. While it is widely expected that there will be no change in policy, both the statement and the Chair’s remarks provide clues to future policy.
The Wednesday meeting is the last one before the president’s tariff day of reckoning on April 2. Investors will be watching the Fed statement and the Chair speak during his presser to see if there is any mention of the pending tariffs.
