Washington: What to Watch Now

On Capitol Hill, Congress is rushing to pass the six remaining appropriations bills necessary to fund the government for the current fiscal year. Failure to do so before the January 30 deadline could mean another government shutdown. (As a reminder, Congress must pass 12 appropriations bills every fiscal year to fund the government's operations. The current fiscal year ends on September 30.)

The Senate last week passed a package of three funding bills, which have been sent to the president for his signature. The bills provide funding for the departments of Commerce, Energy, Interior, and Justice, as well as the EPA, water projects, and science initiatives. The House passed that package earlier this month.

Also last week, the House passed two other bills that would fund the State Department, the Treasury, financial services agencies, and various White House functions. The Senate, which is in recess this week, is expected to pass that package next week.

On Tuesday, House negotiators also released the text of a massive $1.2 trillion package that includes the remaining four appropriations bills. That legislation includes nearly $840 billion for the Pentagon, as well as funding for the departments of Education, Health and Human Services, Homeland Security, Housing and Urban Development, and Transportation. The House is aiming to pass that bill by January 23, giving the Senate about a week to pass it before the January 30 deadline. The timing is tight, but not impossible.

After an unusually public months-long search process, Trump announced January 30th that he will nominate Kevin Warsh, to succeed Fed Chair Jerome Powell when Powell's term ends in May. Warsh served as a Fed governor from 2006 to 2011 and was widely seen as the runner-up when Trump nominated Powell as chair in 2017. Warsh is expected to be confirmed by the Republican-controlled Senate. But one complication is that Senator Thom Tillis (R-N.C.), a member of the Senate Banking Committee that will consider Warsh's nomination, reiterated last week that he will block any Fed nominee until a criminal investigation of Powell launched last month is resolved.

If confirmed, Warsh will face heavy pressure from the president to lower interest rates quickly. The president joked January 31st that he may sue Warsh if he doesn't lower rates fast enough. But the Federal Open Markets Committee (FOMC) has 12 voting members, of which the chair is just one, so Warsh will have to build consensus among disparate views on the committee. Once confirmed, Warsh would become chair in May and his first FOMC meeting would take place June 16th-17th.

On January 16, President Trump said he may be inclined to keep Kevin Hassett in his current role as the president's top economic advisor and chair of the National Economic Council. Hassett, one of four finalists to succeed Powell when his term ends in May, had been considered a favorite for the job.

At a White House event, Trump said of Hassett, "I actually want to keep you where you are, if you want to know the truth."

With that comment, attention turned to former Fed governor Kevin Warsh as a potential nominee. Trump has also interviewed current Fed governor Christopher Waller, and last week spoke with Rick Rieder, the chief investment officer for global fixed income at BlackRock.

Some in the White House reportedly think Rieder would be the easiest for the Senate to confirm. But Bloomberg reported on Tuesday that Trump is "somewhat frustrated by his choices," with each candidate offering positives and negatives.

Treasury Secretary Scott Bessent said Tuesday morning that Trump may announce his choice next week.

The Senate Agriculture Committee approved the legislation on a party-line vote on January 29th. The bill would designate the Commodity Futures Trading Commission as the primary regulator of the crypto industry, including overseeing spot trading in bitcoin and other digital assets. But the bill faces an uncertain future because it must be merged with a companion bill from the Senate Banking Committee, which shares jurisdiction over key issues. That panel has struggled to reach consensus on its version of the legislation and recently postponed to at least March a planned vote on the measure to allow more time for negotiations. The Banking Committee bill has sparked something of an existential battle between the traditional banking industry and crypto companies over the payment of "rewards" to crypto customers who hold stablecoins. The banking industry opposes the rewards, which it argues are like high-yield deposits but without the regulations that banks must comply with regarding customer deposits. The White House is convening executives from banks and crypto companies to try to find a compromise.

Democrat Christian Menefee won a special election January 31st to succeed the late Rep. Sylvester Turner (D-Texas), who died in March 2025. Menefee is expected to take the oath of office this week, reducing the House Republican majority to 218-214. That means that Republicans can lose just one of their members on any vote, since losing two would produce a 216-216 tie and ties lose under House rules. There are three other vacancies in the House, which will be filled by special elections: one in March in Georgia, one in April for a vacant seat in New Jersey and the third in August for an open seat in California.

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