Update 882 – Fiscal Fingers Crossed?
Rescissions Package Sets Precedent
For the first time in over 30 years, Congress has acted on a presidential rescissions request under the Impoundment Control Act to cancel funding that was previously approved in bipartisan appropriations bills. Beyond funding cuts, this move sets a precedent for undoing negotiated agreements by simple majority, raising serious concerns about the future of bipartisan funding negotiations, and more. The impact this time will be seen this fall, as Congress must pass the FY26 budget before October to avoid a government shutdown.
In other economic policy developments, Republicans’ “Crypto Week” closed with both the GENIUS Act and the CLARITY Act sailing through the House. This week saw the release of new data showing that inflation began to rise in June due to the Trump administration’s elevated tariffs, with prices rising by 2.7 percent on an annualized basis. The President also announced new tariff rates for our closest trading partners and allies, and Republicans on the House Financial Services Committee discussed proposed attacks on financial reforms enacted through the Dodd-Frank Act.
Good weekends all…
Best,
Dana
Headline
Rescissions
$9 Billion Package of Rescissions Clears Congress
This week, Congress passed a $9 billion rescissions package targeting previously appropriated funding for international assistance and public broadcasting. The package, which originally stood at $9.4 billion, was initially passed by the House in June in a 214-212 vote before being sent to the Senate for consideration. The Senate voted 51-48 in favor of an amended package early yesterday morning that stripped out a $400 billion rescission of international aid, with two Senate appropriators – Committee Chair Susan Collins (R-ME) and Senator Lisa Murkowski (R-AK) – joining Democrats in opposition. The House quickly followed suit late last night, approving the amendment in a 216-213 vote. Republican Representatives Brian Fitzpatrick (R-PA) and Michael Turner (R-OH) voted against the measure along with all House Democrats.
The passage of the rescissions package followed a week of contentious debate that was mostly centered in the Senate. A small group of GOP Senators took issue with some of the specific rescissions included in the package – namely, a $400 million cut to the President’s Emergency Plan for AIDS Relief (PEPFAR) and cuts to public broadcasting, which could disproportionately
impact rural communities. While concerns about the latter were left unaddressed, Republicans ultimately agreed to an amendment that would protect PEPFAR funding. This was not enough to win over Senators Collins and Murkowski, though Republicans were able to narrowly avoid more defections. The amendment itself caused relatively little pushback in the House despite previous statements of opposition to Senate changes.
This marks the first time Congress has approved rescissions under the Impoundment Control Act – which allows the administration to withhold funding for 45 days and formally claw back the funding given simple-majority approval in both chambers – since 1992. The administration’s decision to resort to a partisan package to cancel funding that was approved in bipartisan appropriations bills, which require 60 votes, now threatens bipartisan appropriations negotiations ahead of the end of the current fiscal year on September 30.
Rescissions Package: Broader Impact
Throughout the first months of Trump’s second term, the Republican majority has allowed the administration, and its pet project DOGE, to withhold hundreds of billions in congressionally appropriated funding without issuing formal rescissions requests. Even as that is still occurring, congressional Republicans have decided to cede even more of the body’s constitutionally mandated “power of the purse” by giving the green light to the $9 billion package of funding rescissions that make up a small portion of the funds the administration is withholding. While the administration is likely to send more packages in the future, as OMB Director Russell Vought reiterated yesterday, the rescissions package’s passage can be seen as an acceptance of the administration’s unconstitutional behavior on the funding front.
Democrats are not willing to accept the administration’s attack on government funding agreements without a fight. Senate Appropriations Ranking Member Patty Murray (D-WA) has repeatedly warned that Democrats will not enter into bipartisan agreements without assurances that funding won’t be wiped out by rescissions packages that can pass with a simple majority vote. A lack of bipartisanship in the appropriations process drastically increases the chances of a government shutdown in October, especially given the palpable tension between the parties. Next week, Senate Majority Leader John Thune (R-SD) plans to bring the Senate’s Military Construction and Veterans Affairs (MilCon-VA) appropriations bill – which cleared committee in a bipartisan, 26-3 vote – to the full Senate floor. Democratic positioning on this vote is likely to tell us a lot about the prospects for government funding agreements in the coming months.
Underlying these tensions is a deeper concern: government funding authority – and with it, fundamental control over federal spending – is steadily shifting away from Congress and toward the Executive Branch. This shift is a direct threat to the system of checks and balances that has safeguarded our democracy and helped to make it the envy of the world – an envy that is being wiped out by a single administration and the acquiescence of congressional Republicans.
Other Developments
Crypto Week Comes To A Close
On Thursday, the House GOP succeeded in making this week a “crypto week” by passing the GENIUS Act and the CLARITY Act, both by overwhelming margins of 308-122 and 294-134, respectively. A bill to ban central bank digital currencies (CBDC) passed largely along party lines. This marks a big win for Trump and the GOP’s crypto agenda, and an even bigger win for the crypto industry that is seeing its massive lobbying efforts pay off. As the vote totals show, the bills received considerable bipartisan support, demonstrating the eagerness of both parties to appease an industry that has gained an outsized amount of political influence even as several members of the Democratic leadership, such as Rep. Maxine Waters (D-CA), were vocal in their opposition.
The votes came after GOP leadership broke a ten-hour standoff with members of the House Freedom Caucus (HFC) and House GOP. The central issue in the standoff was legislation over central banking digital currencies (CBDCs), which is to say cryptocurrencies issued by the Fed, which many conservative hardliners fear would give the Fed too much control over digital assets, especially stablecoins, which could be backed by Treasury bills. The HFC wanted its Anti-CBDC Act bundled with the CLARITY Act, the House’s broad market structure bill, but House GOP leadership opposed this consolidation on the grounds that it would cost the bill most of the bipartisan support it has garnered so far, which would make it particularly difficult to pass through the Senate.
An agreement was reached between GOP leadership and the HFC on Wednesday to move forward with its crypto legislation, where most of the HFC agreed to vote to let the CLARITY and GENIUS Acts proceed in exchange for adding anti-CBDC provisions to the FY2026 National Defense Appropriations Act (NDAA). The GENIUS Act now heads to Trump’s desk for signing, but the CLARITY Act’s way forward is murkier. CLARITY will now head to the Senate, which still has not come up with its own version of the market structure bill, as it is a far more complicated issue than what the GENIUS Act covered, which was mainly focused on establishing standards for stablecoin issuers. In all likelihood, progress for CLARITY will be quite slow, with an expectation that it will pass through the Senate in several months at the earliest. The Anti-CBDC Act is unlikely to pass on its own through the Senate, hence the separate provision to be added to the NDAA.
Trump Administration’s Tariffs Push Inflation Up to 2.7%
Inflation, as measured by the Consumer Price Index (CPI), ticked up in June to its highest level since February as the Trump administration’s tariffs showed their clearest sign yet of pushing prices up in key sectors across the economy.
Prices rose by 0.3 percent on a monthly basis and by 2.7 percent on an annualized basis in May, according to the June CPI report released by the Bureau of Labor Statistics on Wednesday. This is up from an annualized increase of 2.4 percent in May and a 2.3 percent increase in April. Core CPI – which excludes food and energy prices – rose by 0.2 percent on a monthly basis and by 2.9 percent on an annualized basis, slightly up from the 2.8 percent annualized increase in prices over each of the three months prior.
Prices in several tariff-sensitive sectors rose over the month. Among them, the prices of:
- household furnishings and operations rose by 1.0 percent in June, after rising 0.3 percent in May.
- apparel rose by 0.4 percent over the month.
Over the same period, prices of new vehicles, used cars and trucks, and airline fares fell, reflecting reduced consumer demand. Prices of used cars and trucks fell by 0.7 percent in June after declining 0.5 percent in May, prices of new vehicles fell by 0.3 percent in June, and prices of airline fares fell by 0.1 percent.
Food prices rose by 0.3 percent on a monthly basis in June, with grocery prices rising by 0.3 percent over the month. Meanwhile, energy prices rose by 0.9 percent on a monthly basis last month.
The new inflation data comes ahead of the Federal Open Market Committee’s (FOMC) meeting set for the last week of July, during which it will decide the immediate future level of interest rates. Committee officials opted to hold interest rates steady at the 4.25 to 4.5 percent range at their last meeting and are monitoring the impact of the Trump administration’s trade, immigration, fiscal, and regulatory policy changes before they determine the path forward.
Tariffs on U.S. Top Trading Partners, Indonesia Deal
Over the last weekend, the President sent letters threatening a 30 percent tariff on the EU and Mexico to take effect August 1, amongst the letters sent to governments of two dozen countries over the past week.
- Mexico: Although the President concedes that Mexico has been taking steps to help the United States secure the border for unauthorized migrant crossings, he claims that Mexico has not done enough to curb drug cartels or the influx of fentanyl into the U.S. It is not yet officially clear if the previous USMCA exemption from higher tariff rates would hold come August 1. President Sheinbaum of Mexico has done relatively well negotiating with the President and has expressed frustration with the administration’s decision, but also conveyed some hope that a resolution could be reached before August 1. Over 80 percent of goods exported from Mexico went to the U.S. last year, while Mexico is the second largest importer of American goods.
- European Union: For weeks, the E.U. and the U.S. had been teasing a trade deal. However, this weekend the President announced the 30 percent tariff on the bloc, signaling those negotiations were not satisfactory. The bloc has plans to retaliate, including tariffs totalling close to $200 billion worth of American goods. The E.U.’s next move is uncertain. They could choose to push forward with negotiations ahead of the August 1 deadline or enforce their retaliatory plans on key American products, including Bourbon and airplanes. The U.S. is the largest importer of European exports, according to the European Council.
- Canada: Canada, on the other hand, is set to face a 35 percent tariff on August 1. In President Trump’s letter, he pointed to the flow of fentanyl across the northern border. To begin with, only a small amount of fentanyl crosses into the United States, but Canada has still taken measures to secure the border to appease the President. In 2024, Canada was the number one destination for U.S. exports and the third largest source of American imports.
On Tuesday, Indonesia secured a deal with the U.S. under which it will face a 19 percent duty on goods entering the United States, which is a significant decrease from the 32 percent tariff announced on Liberation Day. U.S. goods will face a zero percent tariff when sent to Indonesia. Indonesia also committed to purchase $15 billion in energy, $4.5 billion in agricultural products and 50 Boeing jets.
Hearings
HFSC Highlights Legacy of Dodd-Frank
The House Committee on Financial Services convened for a hearing on Tuesday to review the legacy of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the bill Congress passed 15 years ago in the wake of the 2008 financial crisis. The sweeping legislation established a new regulatory framework – including the creation of the Consumer Financial Protection Bureau (CFPB), the Financial Stability Oversight Council (FSOC), the Office of Financial Research (OFR), and the Federal Reserve’s Vice Chair for Supervision position – was designed to strengthen financial guardrails after the prior years of deregulation.
As Better Markets President Dennis Kelleher noted, “too-big-to-fail, too-big-to-manage, too-big-to-jail, and too-big-to-regulate financial institutions remain alive, well, and getting much worse due to the deregulation juggernaut unleashed by the Trump administration.” Committee Republicans sought to embolden those very institutions through a slate of largely dangerous bills noticed at the hearing, including several attacking the CFPB, notably H.R. 654, the Taking Account of Bureaucrats’ Spending (TABS) Act of 2025, led by Representative Andy Barr (R-KY), which would subject the CFPB to the annual appropriations process.
We encourage all members to oppose all attacks on the CFPB and its work as these bills move forward. The Committee is likely to vote on the slate of legislation during its markup next week.
House Judiciary Antitrust Panel: Bankruptcy Law Reform
The House Committee on the Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust held a hearing on Tuesday in which members examined potential legislative reform to streamline and strengthen the bankruptcy system for both debtors and creditors.
Subcommittee Ranking Member Jerrod Nadler (D-NY) highlighted the over $1.6 billion in student loan debt facing over 40 million Americans and that the bankruptcy code makes it nearly impossible to discharge student loans, preventing student borrowers from receiving relief under the current bankruptcy system. As Melissa Jacoby, Professor of Law, University of North Carolina at Chapel Hill, noted, earlier iterations of bankruptcy law offered some financially distressed individuals relief from student loans without filing and winning an undue hardship lawsuit, which places an often insurmountable burden of proof on student borrowers. Nadler and Judiciary Committee Chair Jamie Raskin (D-MD) called for the repeal of the current limitation on educational debt, making student debt dischargeable under bankruptcy, like most types of consumer debt.
Look Ahead
Tuesday, July 22
- Federal Reserve Integrated Review of the Capital Framework for Large Banks Conference
- House Financial Services Committee markup
Wednesday, July 23
- House Financial Services Committee markup