House Heads Home Early for Seven-Week Recess

The Federal Reserve raised a benchmark interest rate for the first time in more than three years, defying President Trump's oft-repeated push for lower rates. House Republicans, meanwhile, cut another day off an already shortened September session, sending members home to campaign. But you should really see how Speaker Mike Johnson defended the decision. So read on...

Fed Hikes Key Interest Rate for First Time Since 2023

Citing concerns about persistent inflation, Federal Reserve officials voted unanimously on Wednesday to raise the bank's benchmark interest rate by a quarter of a percentage point, to a range between 3.75% and 4.0%.

The decision - the first rate hike since 2023 - pushes the Fed's interbank lending rate to its highest level since December 2025.

The move comes as Fed officials confront persistent inflationary pressure, driven by President Trump's tariffs, the buildout of artificial intelligence infrastructure and, most recently, a surge in energy prices sparked by the war with Iran. The latter has driven fuel costs sharply higher, with U.S. diesel prices sitting at record highs and likely moving higher.

"Inflation remains elevated," the rate-setting Federal Open Market Committee said in a brief statement. "Today's policy action will support a timelier return" to the Fed's 2% target rate for inflation - a target it has missed for more than five years. "The committee will deliver price stability," the committee declared.

In comments delivered at the conclusion of the FOMC's two-day meeting, Fed Chair Kevin Warsh said he has not seen signs that the inflationary wave is receding. "The plain fact is that inflation is too high and has been for too long," Warsh said. "This summer's inflation readings do not tell me that underlying trends have meaningfully improved."

Warsh said that the Fed "must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Today, the FOMC decided that this standard has not been satisfied."

At the same time, Warsh said that his view that the economy has been growing stronger in recent months has been borne out. "The economy has strengthened," he said. "It's a judgement I have and the committee has."

The labor market remains resilient, Warsh said, suggesting that it was appropriate for the Fed to concentrate on the other half of its dual mandate, price stability. "Inflation risks are to the upside, while labor risks are roughly balanced," he said.

Investors reacted to the news and to Warsh's hawkish stance at the press conference by driving stocks sharply lower on worries about higher rates, with the Dow Jones Industrial Average falling over 600 points, or 1.2%. The yield curve flattened, as short-term interest rates rose and long-term rates eased slightly. The yield on the 10-year Treasury note moved above 5%, a key psychological level for the market.

More rate hikes ahead? Today's rate hike was widely anticipated, and some analysts were more interested in what the Fed would say about the future. Projections by the FOMC members show that 16 of the 18 participants expect to see another rate hike this year, while just two expect the central bank to limit itself to a single rate hike. (Warsh has refrained from providing projections.)

Warsh did not address any plans he might have for future changes in policy. He did say that with today's rate hike, "we removed a dose of accommodation" - implying that monetary policy had been too loose given the current conditions.

Warsh also refrained from discussing President Trump, who recently appointed him as Fed chief and who has long called for significant rate cuts.

Trump, however, did not hold back. "Interest Rates in the United States should be 1%, or less, because we are the Best Credit in the World - BY FAR," Trump wrote on his social media platform. "LOWER THE INTEREST RATES FOR THE UNITED STATES OF AMERICA, AND FAST!"

What the analysts are saying: Analysts were generally pleased that the Fed matched expectations and raised rates, providing a signal that the central bank is taking the threat of inflation seriously.

"Today's FOMC could mark the moment when the FOMC regained a measure of spine," Brad Conger, chief investment officer at Hirtle & Co., said, according to CNBC. "There were many arguments for standing still. But for once, the committee sided with Main Street."

Many analysts said the Fed would raise rates again this year, though much depends on how the economy develops over the next few months. "One more hike this year in December is our base case, although this remains contingent on upcoming CPI reports and the path of energy prices," Kay Haigh, global head and CIO of fixed income and liquidity solutions at Goldman Sachs, said in a note, per CBS News.

Joseph Brusuelas, chief economist at RMS, applauded the Fed's move. "Just about every economic indicator suggests that the Fed rate increase was appropriate and that it is time to bring inflation back to [the] Fed's 2% inflation target," he wrote in a research note.

Still, Brusuelas warned that the Fed has its work cut out for it, and the effort to bring inflation back to the 2% target may take more time and more rate hikes than are currently being contemplated. "If anything, the committee is underestimating the heavy lift that will be necessary to restore price stability under current economic and financial conditions within the context of the three shocks-tariffs, energy and the AI build-out-that the economy has absorbed in a resilient fashion."

House to Leave Early for Seven-Week Recess Until After Elections

Speaker Mike Johnson announced Wednesday that he's cancelling a session planned for Thursday and sending members home a day early for their seven-week campaigning recess, which will stretch until after the November 3 midterm elections.

"It's time for our members to go home to their districts and make their case to the American people, to go and explain all the great things we've done," Johnson told reporters.

The decision carries the added benefit for the speaker and his Republican members that it will prevent a vote on a resolution brought by outgoing GOP Rep. Thomas Massie to impeach Defense Secretary Pete Hegseth.

Many Democrats criticized the decision. In a video posted to X, Rep. Melanie Stansbury of New Mexico noted that the House had passed a war powers resolution on Tuesday. Seven Republicans joined with Democrats to block President Trump from taking further military action against Iran.

"There's really only one explanation for why they would cancel votes tomorrow and send us home early before the midterms," Stansbury said, "and that's because they are afraid that the House of Representatives will vote to impeach Pete Hegseth."

Even before Johnson sent members home early, dozens of Democrats called on him to keep the House in session to allow for "urgent action" to address concerns about the potential threat to humanity posed by rapid advances in artificial intelligence and work by AI companies toward a "superintelligence."

"You can forgive every American who believes that Congress remains unserious about confronting our nation's most pressing challenges," more than 100 Democratic House members wrote in a letter to the speaker on Tuesday. "The House should remain in session until Congress advances meaningful, bipartisan AI safeguards. To our children who will have read a post-apocalyptic history, 'Why Congress Slept' -likely written by agentic AI- our inaction will be inexplicable and unforgivable."

Johnson largely dismissed such concerns this week as pre-election "alarmism" meant to spin up outrage and fear, comparing it to warnings about looming climate change catastrophes. He told reporters that the White House and lawmakers are "summoning together" the leaders of top AI labs for a meeting within the next week. He insisted that companies already have the responsibility to make safe products and can self-regulate - and he warned against falling behind China in the race to lead the AI revolution. "We do not want to jump in - the reflex of legislative bodies is to cover things up with red tape and hyperregulation," Johnson told reporters Tuesday. "If you do that, then you lose your edge and that is a national security concern for the American people."

Some Republicans also expressed frustration that they were being sent home early. "Canceling yet another day of votes is unacceptable," Rep. Ralph Norman of South Carolina said in a post on X. "The House has now canceled at least 63 scheduled voting days this Congress, including nine days this month alone, and now we're leaving Washington until after the election. ... If Members of Congress want to go home and campaign instead of doing the job taxpayers sent us here to do, then their campaigns ought to be paying them, NOT the American taxpayer."

But Johnson told reporters Wednesday that he was changing the schedule because "the House has done its work." He also repeated his claim that the current Congress has been among the most productive in U.S. history. "This House has been the second most productive in terms of legislation in the history of the institution since 1789," Johnson said.

The numbers don't really support that claim - and neither does the calendar. By the time lawmakers return in the second week of November, the House will have been in session for a grand total of 84 days over the first 10-plus months of the year, and just 31 days since Memorial Day.

Thanks to DOGE, Federal Workers Were Paid $9.5 Billion Not to Work

The Trump administration paid $9.5 billion to federal employees who were on paid administrative leave in 2025, the U.S. Government Accountability Office said in a new report released this week.

The report found that spending on administrative leave rose 435% in 2025, a sixfold increase from such spending in 2023.

The increased use of administrative leave was driven by the Trump administration's effort to radically shrink the size of the federal workforce, an endeavor spearheaded by the Department of Government Efficiency, or DOGE, which was not, in fact, a government department. Instead, DOGE was an office within the executive branch. Originally run by tech billionaire Elon Musk, DOGE sought to trim as much as $1 trillion from the federal budget, though it fell well short of that goal, with some critics concluding that it actually cost the government money through its chaotic use of forced resignations and poorly planned contract cancellations.

DOGE allowed thousands of federal workers to go on paid leave in early 2025 in exchange for their agreeing to retire or resign by September of that year. The GAO estimated that $6.7 billion of the total amount spent went toward the deferred resignation program.

Half empty, half full: Per Politico, the White House did not provide a comment on the GAO findings. But the Office of Personnel Management criticized the GAO report, saying it focused on a one-time expense while ignoring the long-term savings from cutting the federal payroll, which it said would come to $40 billion a year.

"That 400% return on investment is a massive benefit to the taxpayer," OPM Director Scott Kupor said.

Critics of the DOGE project also weighed in.

"After promising to cut waste, Trump instead set billions upon billions in taxpayer dollars on fire to quite literally pay people not to do jobs they loved-from researching cancer cures to taking care of our National Parks, and so much else," Sen. Patty Murray, the senior Democrat on the Appropriations Committee, said in a statement. "Trump spent billions to push out experienced and badly needed experts across government - this was the most expensive way imaginable to make government worse."

Number of the Day: $177 Billion

Since President Trump returned to the White House, his administration has cut or frozen $177 billion in federal funding across 17 sectors in all 50 states and the District of Columbia, according to an interactive tool introduced Wednesday by the States United Democracy Center, a pro-democracy nonprofit, and Grant Witness, a group of researchers, data scientists and lawyers that tracks science grantmaking.

"Funding cuts and freezes are causing chaos and harm across the country," the Lost Funds project website says.

The groups say that nearly $59 billion in health funding has been disrupted by the administration. Another $36.6 billion in food and nutrition funding, $29.8 billion in disaster relief and $25.9 billion in environmental money have been affected.

California ($17 billion), Texas ($16 billion), New York ($14 billion) and Illinois ($10 billion) suffered the largest total federal grant disruptions, the site says.

"The impact of funding cuts at this scale cannot be overstated," Scott Delaney, co-founder of Grant Witness, said in a statement. "These disruptions touch everything from health care and disaster relief to technology and agriculture. The data tells a story about the consequences communities face as a result of the cuts, and the resources they're fighting relentlessly to preserve."

You can explore the cuts by state and category at LostFunds.org.

Quote of the Day: The World Is Turning Away From US

"Almost two years into President Trump's second term, the world economy is increasingly looking for ways to distance itself from America. Concerns about a $40 trillion debt burden, the excessive use of sanctions to solve foreign policy problems and Mr. Trump's penchant for pushing the limits of the rule of law are raising questions about the appeal of the United States as a haven for global investment."

• New York Times reporter Alan Rappeport, in a piece Wednesday detailing how, as the headline says, "The World Economy Is Becoming Wary of the U.S."

Rappeport writes that, while the United States continues to see investor money pouring in and no currency can currently challenge the global stature of the dollar, America's financial dominance is showing some cracks: "Despite pledges by foreign companies and nations to invest in the United States - in many cases to curry favor with the White House - capital is starting to seek alternative destinations."

Fiscal News Roundup

• Federal Reserve Hikes Key Rate for 1st Time in 3 Years, Defying Trump Demands for a Cut – Associated Press
• Trump Offers Fiery Response to Federal Reserve Rate Hike – The Hill
• Why the Fed Raised Rates as Borrowing Costs Are Surging – New York Times
• House to Adjourn Early, Stave Off Hegseth Impeachment Vote – CNN
• Federal Employees Were Paid $9.5 Billion Not to Work in 2025 Under DOGE Effort – New York Times
• US Billionaires Line up to Bankroll Republicans' Election Push – Financial Times
• Farmers Slam Trump Over Record Diesel Prices: 'We Just Can't Survive' – Newsweek
• Trump's Allies Eye Big Spending Cuts as Part of Postelection Agenda – The Hill
• Trump Administration Has Cut or Frozen $177 Billion in Grants Across Every State, Analysis Shows – Associated Press
• GOP's Gas Tax Holiday Push Falters in House – Politico
• House Republican Meeting Turns Into Shouting Match – Washington Sun
• House Democrats Seek to Block Data Centers From Federal Tax Breaks – Politico
• Senate Panel Advances Farm Bill Following McConnell's Return – The Hill
• Ways and Means Approves Crypto Tax Bill on Bipartisan Vote – Politico
• Fencing Goes up Around the Main Kennedy Center Building After Trump-Aligned Board Votes to Close It – Associated Press

Views and Analysis

• The World Economy Is Becoming Wary of the US – Alan Rappeport, New York Times
• Kevin Warsh Is an Inflation Hawk – Wall Street Journal Editorial Board
• The Key Takeaways From Kevin Warsh's Press Conference – Matt Grossman, Wall Street Journal
• If Trump Can't Have the Kennedy Center, No One Can – Chas Danner, New York
• Why Trump Really Promised You $5,000 – Theodore R. Johnson, Washington Post
• 'That's Not a Strong Suit': Trump's Lack of Message Discipline Shows One Week Post Convention – Alex Gangitano and Myah Ward, Politico
• The Hidden Divide That Shapes Our Politics – Sen. Chris Murphy (D-CT), American Prospect
• There's No Erasing the Alligator Alcatraz Stain – Washington Post Editorial Board
• The Trump Administration Creates a Monopolization Machine – Zachary Groz, American Prospect
• DOGE Works. Let's Keep It Going – Tyler Hassen, Wall Street Journal
• Americans Are Getting Richer* – Wall Street Journal Editorial Board