House Torpedoes Johnson Plan to Avert a Shutdown

Plus: The Fed goes big on first rate cut since 2020 ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ [The Fisc]( By Yuval Rosenberg and Michael Rainey A busy Wednesday, so let’s get right to it. The speaker at his news conference (Reuters) House Rejects Johnson Plan to Avert a Shutdown The House of Representatives on Wednesday evening rejected Speaker Mike Johnson’s plan to avoid a government shutdown at the end of the month, delivering an embarrassing blow to the Republican leader with 12 days to go until the federal funding deadline. The bill was defeated [202-220]( with 14 Republicans joining 206 Democrats in opposing it. Three Democrats supported the bill, and two Republicans voted “present.” Johnson’s failed strategy: Congressional lawmakers failed to complete their work on the 12 annual appropriations bills needed to fund agencies and programs for the coming year, making it necessary for them to push through a short-term extension before fiscal 2025 begins on October 1. Johnson chose to pursue a spending bill extending into late March, hopeful that Donald Trump might win a second term and be able to exert more leverage on the full-year spending plans. And Johnson chose to pair that stopgap with a controversial measure favored by Republicans requiring proof of citizenship to vote in federal elections. Yet he could not round up enough votes to pass his plan. Democrats called the voting legislation unnecessary and compared it to a modern poll tax. Some Republicans questioned the duration of the spending bill or the wisdom of voting on a plan that had no chance of being approved by the Senate of White House. And some Republicans oppose the very idea of a “continuing resolution” or stopgap spending bill. Faced with mounting Republican opposition to his plan, Johnson was forced to pull a planned vote on it last week. He and his leadership team were then unable to convince enough lawmakers in the Republican conference to support the bill — but Johnson brought it to a vote anyway, [baffling]( members in both parties. “I don’t talk about plan B,” he told [Fox News]( this morning. “I’m the quarterback on the field. … Now there’s a big playbook, lots of ideas, but this is the play. This is the right one.” Fourteen members of Johnson’s team disagreed. “This bill is an admission that the House Republican majority cannot govern,” Rep. Rosa DeLauro, the top Democrat on the House Appropriations Committee, said before the vote. What’s next: Democrats are urging a bipartisan approach. “For the last two weeks, Speaker Johnson and House Republican leaders have wasted precious time on a proposal that everyone knows can’t become law. His own Republican Conference cannot unite around his proposal,” Senate Majority Leader Chuck Schumer said earlier in the day. “I hope that once the Speaker’s CR fails he moves on to a strategy that will actually work: bipartisan cooperation.” And DeLauro urged her colleagues to get serious. “I believe that every appropriator on both sides of the aisle would prefer a three-month continuing resolution. Republicans and Democrats need to come to the table. Let us move to setting a date in December,” she said. “To my colleagues on both sides of the aisle, particularly my Republican colleagues, it is now time to govern. Stop the game-playing, stop the foolishness and the wasting of the time we have and let’s get on to the business of the American people.” But Johnson also faces pressure from Trump, who demanded Wednesday that Republicans include the voting registration bill in any government funding package or let the government shut down. “If Republicans don’t get the SAVE Act, and every ounce of it, they should not agree to a Continuing Resolution in any way, shape, or form,” Trump wrote in a social media post. The bottom line: A clean, three-month continuing resolution passed by Democrats and some Republicans may still be the most likely outcome, but with Trump pressuring his party members, the path to avoiding a shutdown is unclear. The Fed Goes Big With First Rate Cut Since 2020 In a sign that its two-and-half-year battle against inflation has reached a major inflection point, the Federal Reserve on Wednesday slashed its key interest rate by half a percentage point, its first rate reduction since 2020. In a [statement](, the rate-setting Federal Open Market Committee said it “has gained greater confidence that inflation is moving sustainably toward 2 percent,” with the risks to achieving the goals of the central bank’s dual mandate — price stability and maximum employment — now roughly in balance. Fed Chair Jerome Powell told reporters that the U.S. economy is in good shape overall, even as the central bank dropped its benchmark federal funds rate to a range between 4.75% and 5%, adjusting its policy to bolster the labor market. “The labor market is actually in solid condition, and our intention with our policy move today is to keep it there,” Powell said. “You can say that about the whole economy. The U.S. economy is in good shape. It’s growing at a solid pace, inflation is coming down, the labor market is in a strong [place]. We want to keep it there. That’s what we’re doing.” The FOMC voted 11 to one in favor of the unusually large rate cut. The lone dissenter, Fed Governor Michelle Bowman, said in late August that she is worried about a possible resurgence of inflation. “I still see some upside risks to inflation as supply conditions have now largely normalized and any further improvements to supply seem less likely to offset price pressures arising from increasing geopolitical tensions, additional fiscal stimulus, and increased demand for housing due to immigration,” she [said]( at a meeting of bankers. Looking ahead, projections made by Fed officials show they expect more rate cuts in the coming months. Most of the 19 FOMC members predicted that interest rates would be lower by the end of the year than they are now, with nine projecting another 50 basis points in cuts, seven predicting just one more cut of 25 basis points, and one foreseeing 75 basis points in cuts. The remaining two thought interest rates would hold steady for the rest of the year. In the longer run, Fed officials see interest rates settling in a range between 2.5% and 3.5%, higher than before the pandemic. “We’re probably not going back to that era where there are trillions of dollars of sovereign bonds being issued at negative rates,” Powell said. “My own sense is that we’re not going back to that.” White House cautiously celebrates: The Fed’s decision is good news for a White House that has been dogged by persistent inflation for most of its term. Vice President Kamala Harris cautiously noted the Fed’s change in policy, while emphasizing that she still sees work to be done on prices. “While this announcement is welcome news for Americans who have borne the brunt of high prices, my focus is on the work ahead to keep bringing prices down,” she said in a statement. What the experts are saying: Most economists applauded the rate cut, with some expressing concern that the Fed may have waited too long amid signs of fatigue in the jobs market. “The economy is still adding up to be strong in third quarter but the labor market is weak,” KPMG chief economist Diane Swonk [said]( on social media. “Hence, cut now to prevent further weakness and avert a recession. Even if employment slips into the red in a month ... we will likely avoid recession, as we will have a tailwind of rate cuts to keep [the] economy going.” Still, there was no denying the rosy outlook provided by Fed officials. Jason Furman, who led the Council of Economic Advisers in the Obama administration, said the economic projections provided by members of the FOMC are “just about the closest thing to a ‘Mission Accomplished’ banner you can imagine them unfurling,” even though Powell explicitly said he was not doing that just yet. Fed officials foresee “2% inflation going forward with no slowdown in economic growth and the unemployment rate staying low and falling,” Furman said, indicating that, in their view, the battle against inflation appears to be over. University of Michigan economist Justin Wolfers summed up a typical perspective on the news: “The economy is getting back to normal, inflation is back down to normal, and so now rates are heading back to normal,” he [wrote]( on social media. “The right decision, albeit a tad late.” In Michigan, Trump Pitches Tariffs and Slams Harris on Taxes In his first appearance on the campaign trail since a second apparent assassination attempt, former President Donald Trump on Tuesday evening made an economic pitch to Michigan voters centered on higher tariffs and lower taxes. In a wide-ranging discussion at a town hall in Flint, Trump criticized Vice President Kamala Harris on taxes, slamming her proposal for a billionaire minimum tax, or a tax on the unrealized capital gains of the wealthy. “I don’t know how they can possibly administer it. The only ones who are going to make money are appraisers and accountants,” Trump said. “It’s the craziest thing I’ve ever heard.” He also warned that business would flee the country under Harris’s tax rates, repeated [previously debunked]( claims about the benefits to small farms and small businesses of his estate tax changes and said he’d aim to cut energy bills in half and lower interest rates to fight inflation. “Interest rates, energy and common sense,” Trump said in response to a question about how he’d lower costs for consumers (though economists say lower rates could boost inflation). The former president also repeated his false claims about the 2020 election and grim warnings about the direction of the country; discussed the attempts on his life; praised the Secret Service; and seemed to [confuse]( the Arctic National Wildlife Refuge in Alaska with Bagram Air Force Base in Afghanistan. But he sought to focus on the economy and car manufacturing, claiming that if Vice President Kamala Harris wins the presidency the U.S. auto industry would cease to exist. “If I don’t win, you will have no auto industry within two to three years,” Trump said. “You will not have any manufacturing plants. China is going to take over all of them because of the electric car.” Trump said he would impose 200% tariffs on vehicles made by Chinese automakers in Mexico. “I’m putting a 200% tariff on which means they’re unsellable — unsellable in the United States,” Trump said to cheers from the audience. “And then you wonder why I get shot at, right? You know, only consequential presidents get shot at.” One problem: Trump’s claims about Chinese automakers building factories in Mexico are [false](. Another problem: “automaking employment has grown since President Joe Biden took office in January 2021, after dropping during Trump’s first term,” the Associated Press [reports](. “Auto jobs dipped 0.8% during Trump’s term to just over 949,000 in January 2021, when he left office, according to the Bureau of Labor Statistics. Since Biden took office that month, auto and parts jobs rose 13.6% to 1.07 million in August, so there’s no evidence of the industry disappearing.” Trump also defended his use of tariffs more broadly, even as economists have warned that his plans would raise costs for U.S. consumers. “Tariffs are the greatest thing ever invented,” he said. Spurred on by Arkansas Gov. Sarah Huckabee Sanders, who moderated the event and served as Trump’s White House press secretary, the former president also defended his speaking style, pushing back on Harris’s debate claim that people leave his rallies due to boredom and on reports that often describe him as rambling or meandering. “I give these long, sometimes very complex sentences and paragraphs, but they all come together,” Trump said. “The fake news likes to say, ‘Oh, he was rambling.’ No, no, that’s not rambling. That’s genius, when you can connect the dots.” Whether it was meandering or genius, Trump went on to display plenty more of it. Asked by an audience member what he sees as the major threats to Michigan automaking jobs, Trump gave a nine-minute-long answer. “When you say major threat, to me, we have one really major threat, that’s called nuclear weapons,” he said before going on to criticize talk of climate change, warn that he believes we’re closer to World War III than ever before, discuss China, India and Russia and again pitch tariffs. What’s next: Trump is holding a rally in Uniondale, New York, tonight. --------------------------------------------------------------- Send your feedback to yrosenberg@thefiscaltimes.com. --------------------------------------------------------------- Fiscal News Roundup - [House Republicans Reject Their Own Funding Bill With a Shutdown Around the Corner]( – NBC News - [Trump Pushes for a Shutdown if Lawmakers Can’t Pass Bill Targeting Noncitizen Voting]( – CNN - [Johnson's Colleagues Baffled by His Shutdown Strategy]( – Axios - [“He’s Cooked”: Republicans Say This Is Mike Johnson’s Last Rodeo]( – New Republic - [Federal Reserve Cuts Key Rate by Sizable Half-Point, Signaling End to Its Inflation Fight]( – Associated Press - [Powell Pushes Back on Suggestion Fed Got Behind in Rate Cuts]( – The Hill - [Trump Weighs In on Fed Rate Cut During Stop at Manhattan Bitcoin Bar]( – The Hill - [Schumer Calls Out Trump for ‘Selective Amnesia’ on SALT]( – The Hill - [Chief Senate GOP Tax Writer Floats Alternative Cost Estimate for 2025 Package]( – Roll Call - [Trump Pledges Tariffs and Repeats False Claim of Chinese Automakers Building Big Mexican Factories]( – Associated Press - [Trump Makes Big Promises, With Little Detail, for Michigan’s Auto Industry]( – New York Times - [Justice Department Sues Over Baltimore Bridge Collapse and Seeks $100 Million in Cleanup Costs]( – CNBC - [Trump Quips He Wishes Biden Hadn’t Called Him: ‘He Was So Nice to Me’]( – The Hill Views and Analysis - [Trump’s Pitch to Working-Class Voters Is a Scam]( – Timothy Noah, New Republic - [When We Try to Explain the Rise of Trump, We Don’t Look Back Far Enough]( – David Wallace-Wells, New York Times - [The House GOP Is a Circus. The Chaos Has One Source]( – Dana Milbank, Washington Post - [The Cut Heard Round the World]( – Jessica Karl, Bloomberg - [Key Takeaways From the Fed’s Decision to Deliver a Jumbo-Sized Interest Rate Cut]( – Bryan Mena, CNN - [The Fed’s Rate Cuts Could Have Unintended Consequences for the Housing Market]( – Allison Morrow, CNN - [A Fed Rate Cut Would Cap a Winning Streak for Biden and Harris on Prices]( – Jim Tankersley, New York Times - [There Was Nothing Political About the Fed’s Big Interest Rate Cut]( – Peter Coy, New York Times - [The Fed Finally Lightens Up]( – Robert Kuttner, American Prospect - [The Fed’s Uncertain Destination Troubles the Bond Market]( – Jonathan Levin, Bloomberg Copyright © 2024 The Fiscal Times, All rights reserved. You are receiving this newsletter because you subscribed at our website or through Facebook. The Fiscal Times, 399 Park Avenue 14th Floor, New York, NY 10022, United States Want to change how you receive these emails? 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