Washington: What to Watch Now

This will be a critical week for the "One Big Beautiful Bill." Senate leaders are hoping to get the massive tax and spending legislation to the Senate floor for debate and a marathon series of votes by the end of the week. But the bill is still very much in a state of flux as senators negotiate among themselves on several tricky issues and also deal with the Senate parliamentarian's decisions about what meets the strict rules for the bill under the budget reconciliation process.

The parliamentarian, the nonpartisan arbiter of the Senate's rules, has already ruled that several significant provisions will have to be dropped from the bill, including the elimination of funding for the Consumer Financial Protection Bureau; some of the bill's cuts to the Supplemental Nutrition Assistance Program (SNAP), popularly known as food stamps; and a provision that would limit judges from issuing nationwide injunctions. On Tuesday, the parliamentarian is expected to rule on whether any elements of the bill's Medicaid cuts and tax provisions violate the rules. Senate Republicans are also continuing to hash through internal disagreements over the size of the debt ceiling increase, the state and local tax (SALT) deduction, Medicaid cuts and more.

Assuming the bill gets to the Senate floor toward the end of this week, there will be a marathon "vote-a-rama," as Democrats are planning dozens of amendments that will force Republicans to take difficult votes. All that said, we continue to think an amended version of the bill is likely to pass the Senate before the July 4th recess, though it is not a slam-dunk. The question then will be whether the changes can pass the House of Representatives, since both chambers must pass the exact same bill in order to send it to the president for his signature. Given the scope of the changes to the House bill, which passed by a single vote on May 22nd, it may take House leaders until later in July to wrangle the necessary votes for the revised version likely to emerge from the Senate.

Meanwhile, the Senate fix on the remittance tax should ease concerns. The House-passed version of the One Big Beautiful Bill Act contains a provision that would charge a 3.5% tax on remittances. While the provision is designed to focus on illegal immigrants sending cash back to their home country, the language is so broad that it appears to capture routine brokerage and cash transactions by foreign-based clients. That provision has been clarified in the Senate version of the bill, which specifically excludes transactions through a bank or brokerage from the tax. While the bill is not yet final, this looks like it will ease concerns about routine transactions being subject to the tax inadvertently.

Federal Reserve Chair Jerome Powell will be on Capitol Hill this week for his semi-annual testimony on the state of monetary policy and the economy. He will testify before the House Financial Services Committee on Tuesday and the Senate Banking Committee on Wednesday. The appearances come on the heels of last week's decision by the Federal Reserve to maintain the current federal funds rate for the fourth consecutive meeting, a move that elicited considerable frustration (based on social media posts) from the president. Powell is likely to face a barrage of questions on what data the Fed is watching, how the situation in the Middle East and the potential passage of the One Big Beautiful Bill Act could impact the economy, the Fed's plans for easing big bank regulations and more.

The Senate last week passed the first-ever crypto bill. The legislation will regulate stablecoins, a type of cryptocurrency pegged to the U.S. dollar. It was the first time the Senate has passed cryptocurrency legislation. The final vote was 68-30, with 18 Democrats joining all but two Republicans in supporting the bill. The bill creates a regulatory framework for stablecoins, including requiring issuers to hold dollar-for-dollar reserves in Treasuries or other extremely liquid, regulated investments. Stablecoins would not be part of the Federal Deposit Insurance Corporation (FDIC) system. Some Democrats objected to the bill for having inadequate consumer protections. The president called on the House of Representatives to pass the bill quickly. Two House committees earlier this month approved a second bill, which would create a broader regulatory framework for all digital assets. It's not clear whether the House will merge the stablecoins bill with the broader bill, which would likely delay passage until this fall, or pass the Senate bill as a stand-alone measure.