What a Wednesday! The possibility of a government shutdown this weekend suddenly looks very real, as President-elect Donald Trump trashed a bipartisan federal funding plan. Here’s what’s happening.
Trump Torpedoes Johnson’s Bipartisan Government Funding Deal
President-elect Donald Trump on Wednesday upended efforts to avert a partial government shutdown this weekend, blasting a bipartisan deal negotiated by House Speaker Mike Johnson and calling for a complicated new negotiation.
In a joint statement with Vice President-elect JD Vance, Trump criticized the spending bill and called for the debt limit, which is currently suspended but set to take effect again in January, to be raised right away.
The legislation — a mammoth, 1,547-page government funding package that was unveiled Tuesday evening ahead of a Friday night shutdown deadline — immediately sparked a Republican uproar, and the anger from GOP lawmakers and outside allies quickly threw into doubt the path forward for the legislation.
Amid that uncertainty, Trump’s public opposition is likely to derail Johnson’s deal, again highlighting the chaotic governance of House Republicans in the 118th Congress and the ongoing inability of conservatives to pass a government funding bill.
Trump’s demands: “The most foolish and inept thing ever done by Congressional Republicans was allowing our country to hit the debt ceiling in 2025. It was a mistake and is now something that must be addressed,” the statement said. “Increasing the debt ceiling is not great but we’d rather do it on Biden’s watch. If Democrats won’t cooperate on the debt ceiling now, what makes anyone think they would do it in June during our administration? Let’s have this debate now. And we should pass a streamlined spending bill that doesn’t give Chuck Schumer and the Democrats everything they want.”
Trump and Vance noted that the funding package’s congressional pay increase would come “while many Americans are struggling this Christmas.” They also said that the bipartisan deal would make it easier to hide the records of the House committee that investigated the January 6 attacks on the Capitol.
Trump and Vance called for a short-term funding bill that also increases the debt ceiling but does not include what they described as giveaways to Democrats. “If Democrats threaten to shut down the government unless we give them everything they want, then CALL THEIR BLUFF. It is Schumer and Biden who are holding up aid to our farmers and disaster relief.”
The negotiated bill, known as a continuing resolution, would fund the government through March 14, averting a shutdown of federal agencies. In addition, it includes about $100 billion in disaster aid, $10 billion in financial assistance for farmers, a one-year extension of the farm bill, reforms for pharmacy benefit managers and a measure extending telehealth for seniors. The bill would also have the federal government cover the cost of replacing the Francis Scott Key bridge in Maryland and would pave the way for the NFL’s Washington Commanders to return to Washington, D.C. Oh, and the package would provide the first pay raise for Congress in 15 years — a surprise to many lawmakers. (See more details about the package here.)
Musk flexes his muscle: Trump’s statement came after conservatives eager to scale back the size of government were incensed by that package and described it as just the sort of monstrous year-end spending spree they sought to avoid — and the kind of bill that Johnson had pledged that he would no longer pursue. The angry lawmakers were joined by Elon Musk and Vivek Ramaswamy, the newly appointed heads of President-elect Donald Trump’s Department of Government Efficiency.
Musk derided the bill in a series of social media posts. “This bill should not pass,” he wrote on X, later adding that Congress should not pass any bills until after Trump is inaugurated on January 20 and calling for the ouster of lawmakers who back the bipartisan deal. “Any member of the House or Senate who votes for this outrageous spending bill deserves to be voted out in 2 years!” Musk wrote.
Johnson had tried to defend his deal in a morning appearance on Fox News during which he explained that his razor-thin majority means he needs Democratic votes to pass the bill. Johnson had to negotiate with Democrats and agree to some of their demands because he insisted on including aid for farmers, a priority for many of his members. He argued that Republicans should accept this bill to “clear the decks” for the incoming Trump administration. “That’s when the big changes start, and we can’t wait to get there,” he said.
Those arguments fell flat, and with the deal clearly imperiled, House Republican leaders reportedly considered a clean stopgap spending bill, but Democrats signaled that they aren’t interested in bailing out Republicans who backed out of a bipartisan deal. House Democratic Leader Hakeem Jeffries insisted that Republicans would own a potential shutdown and its consequences.
“House Republicans have now unilaterally decided to break a bipartisan agreement that they made,” Jeffries said. “House Republicans have been ordered to shut down the government and hurt everyday Americans all across this country. House Republicans will now own any harm that is visited upon the American people that results from a government shutdown or worse. An agreement is an agreement. It was bipartisan and there was nothing more to say.”
The bottom line: Trump has completely scrambled congressional plans to avoid a shutdown of federal agencies Friday night — and he’s placed Johnson under a cloud of uncertainty as he faces a January 3 vote to retain his speaker’s gavel. “Trump privately trashed Johnson to senators, saying the speaker ‘mishandled’ the situation,” Punchbowl News reports, citing unnamed GOP sources. This is how Trump’s Washington operates.
Fed Cuts Rates, but Sees Fewer Cuts in 2025
The Federal Reserve cut its benchmark interest rate by a quarter of a percentage point on Wednesday, reducing it to a range between 4.25% and 4.5%. The move, which met market expectations, was the third cut this year. The Fed has now reduced its key rate by a full percentage point since its first cut in September.
In a statement, the Federal Open Market Committee said the U.S. economy has continued to expand at a “solid pace” and that conditions in the labor market have eased. Inflation remains “somewhat elevated,” even as officials continue to see progress in the effort to push it back to a target rate of 2%.
Looking ahead, a new set of economic projections indicates that Fed officials think inflation will remain somewhat sticky in 2025, with an estimated rate of 2.5% at the end of the year, up from the previous estimate of 2.1%.1 Accordingly, Fed officials now expect to cut rates just two times next year, down from the previous estimate of four. Fewer rate cuts are projected for 2026, as well, with the benchmark rate estimated to stand at 3.4% in two years, up from a 2.9% estimate previously.
At the press conference following the announcement, Fed Chair Jerome Powell said the economy has been “moving sideways” on inflation over the last few months, with higher-than-expected price increases. But overall, Powell thinks the basic process of disinflation is still intact, even if it’s taking longer to play out than expected. “The story is still just we're unwinding from these large shocks that the economy got in 2021 and ’22,” he said. There is still inflation, “but it doesn't portend persistently high inflation, so we and most other forecasters still feel that we're on track to ... get down to 2%. It might take another year or two from here, but I'm confident that that's the path we're on, and you know our policy will do everything it can to assure that that is the case.”
Powell highlighted the “strong performance” of the economy, citing solid GDP growth, low unemployment, resilient consumer spending and rising corporate investment. “The U.S. economy has been remarkable,” he said, adding that the labor market is not a source of inflationary pressure at this point.
The continued strength of the economy, combined with the reduction of the benchmark interest rate by a full percentage point, suggests that the central bank is getting closer to its goal of a neutral stance, Powell said. “We can therefore be more cautious as we consider further adjustments to our policy rate,” he added. Fed officials will need to see further progress on reducing inflation in order to continue cutting rates, with future policy moves dependent on the incoming data.
What the experts are saying: Some analysts wondered if the Fed’s more cautious outlook on inflation was a response to Donald Trump’s election, since some of the president-elect’s policy ideas, including tariffs and mass deportations, are seen as potentially inflationary. Powell pushed back on that idea, saying the economic data is the most important factor in the changing outlook, while noting that it’s too early to come to any conclusions about the possible effects of Trump’s policies.
“We just don't know really very much at all about the actual policies, so it's very premature to try to make any kind of conclusion,” he said. “We don't know what will be tariffed from what countries for how long and what size. We don't know whether there'll be ... retaliatory tariffs. We don't know what the ... transmission of any of that will be into consumer prices.”
Whatever the cause, many investors didn’t like what they heard, and stocks tanked after the announcement, with the S&P 500 falling 178 points, or nearly 3%. “Risk assets and a very highly valued stock market doesn’t like the idea that rate cuts are less likely,” DoubleLine Capital CEO Jeffrey Gundlach told CNBC. “The takeaway that I got from that press conference was there’s not going to be an aggressive cutting cycle.”
KPMG Chief Economist Diane Swonk referred to the Fed’s move as a “hawkish cut,” a phrase widely heard on Wednesday. Daniel Siluk, a portfolio manager at Janus Henderson, said the Fed’s outlook suggests there could be an “extended pause” in rate reductions next year, with the central bank indicating that “we are in a structurally higher inflation and rates environment.”
Not all analysts saw doom and gloom in the Fed announcement. RSM Chief Economist Joseph Brusuelas said the Fed’s new stance is a reasonable response to changing economic and political conditions. “While the Fed’s policy decision on Wednesday is likely to be labeled a hawkish cut, in our estimation that is an intellectually unsatisfying description of where the Fed is now and of the policy crosswinds that the Fed will need to navigate in the years ahead,” Brusuelas wrote. “A prudent pause in our estimation acknowledges the reality of significant changes to come in fiscal and trade policy. And Powell in his remarks acknowledged that prospect, that the Fed is not on a pre-determined path in its monetary policy and maintains the flexibility to address the balance of risks that it also noted in its policy statement.”
Fiscal News Roundup
- Government Funding Plan Collapses as Trump Makes New Demands Days Before Shutdown – Associated Press
- Trump Blasts Bipartisan Spending Deal, Demands Streamlined Bill – Wall Street Journal
- Republicans Reject Spending Bill, Under Pressure From Trump and Musk – Washington Post
- Trump Brings Chaos Back to Washington by Attempting to Kill Bipartisan Budget Deal – Associated Press
- GOP Lawmakers Air Doubts About Trump's Last-Minute Spending Demands – Politico
- Elon Musk Comes Out Swinging Against Government Spending Package in Early Test of His Political Might – CNN
- Jeffries Suggests Democrats Will Oppose a ‘Clean’ Funding Bill After Johnson’s Plan Falters – The Hill
- Trump, Musk Threaten Government Shutdown. Here’s What That Costs – Bloomberg
- Senate Passes Defense Bill That Will Raise Troop Pay and Aims to Counter China’s Power – Associated Press
- Social Security Bill Clears First Hurdle in Senate – The Hill
- Biden Administration Running Out of Time to Send Allocated Aid to Ukraine – New York Times
- Dems Want Answers on Billy Long's Tax Credit Work – Politico
- Biden Makes a Last Big Push to Keep Trump From Killing the Electric Car – Politico
- House Ethics Committee Secretly Voted to Release Matt Gaetz Ethics Report, Source Says – Associated Press
- Federal Reserve Cuts Its Key Rate by a Quarter-Point but Envisions Fewer Reductions Next Year – Associated Press
Views and Analysis
- Elon Musk Is Trying to Force a Government Shutdown – Ed Kilgore, New York
- The Great Capitulation – Michelle Goldberg, New York Times
- I Was a Health Insurance Executive. What I Saw Made Me Quit – Wendell Potter, New York Times
- Democrats Allow More IRS Funding to Fade Away – Dylan Gyauch-Lewis, American Prospect
- To Fix Government, the Postal Service Is a Good Place to Start – Washington Post Editorial Board
- Good Riddance to the 118th Congress – Wall Street Journal Editorial Board