Washington: What to Watch Now

Congress' annual August recess has officially begun. The Senate wrapped up its work over the past weekend, while the House started its August break a week earlier. Both chambers are slated to return to Washington on September 2nd, when they will face a scramble to fund the government before the annual September 30th deadline.

Last week, the Senate passed three of the 12 appropriations bills, agreeing to funding plans for military construction, veterans, agriculture, and the legislative branch for fiscal year 2026, which starts on October 1st. The House has passed only two of the 12 bills to date. Congress is going to have to negotiate a temporary extension of funding in late September to avert a government shutdown. But Senate Democrats want an agreement that the president will not send any more "rescissions" bills to Congress—bills that claw back previously allocated funding. In the wake of the bill rescinding $9 billion in funding for foreign aid and the Corporation for Public Broadcasting last month, Democrats want a guarantee that Republicans won't agree to funding bills and then turn around and claw back money from programs they don't like.

The key here is that appropriations bills require a 60-vote supermajority to pass the Senate, while rescissions votes require only a simple majority. So Republicans need Democrat help to pass the appropriations bills, but not to rescind the funding later. This complicated dynamic presages a tense September on Capitol Hill.

President Donald Trump announced late last week that new tariffs will go into effect on imports from more than 70 countries on August 7th. There were some surprises on the list, none greater than the 39% duty on imports from Switzerland, a country with which the U.S. has a trade surplus. Most tariffs appear to be settling at 15% on imports from countries with which the U.S. has struck a deal (e.g., Japan, South Korea, the European Union) and higher for countries with no deal. Higher tariffs on Mexico were delayed for 90 days as the two countries continue to negotiate, but tariffs of 35% on imports from Canada went into effect on August 1st. China's current 30% tariff rate expires on August 12th, but talks continue.

Meanwhile, the 11 judges on the Washington, D.C.-based Circuit Court of Appeals seemed skeptical of the administration's arguments at an oral hearing last week on a critical legal challenge against the tariffs. The U.S. Court of International Trade ruled in May that the president's use of emergency authority to impose tariffs was unconstitutional, but the appeals court stayed that ruling while the case continued. A decision on the appeal is expected in the coming weeks, and the case could go to the Supreme Court. But the case was a reminder that the courts will continue to play a huge role in the fate of the administration's tariff plan.

Federal Reserve Governor Adriana Kugler unexpectedly resigned. Kugler. a governor since September 2023, announced last week that she would resign and return to teaching. Kugler did not participate in last week's Federal Open Market Committee (FOMC) meeting, at which the committee voted to hold the federal funds rate unchanged for a fifth consecutive meeting. Kugler's term was set to expire in January, so the early resignation accelerates the timeline for replacing her. Trump has said he would nominate her replacement in the "next few days," which would set up the Senate confirmation process to take place in September and October. Trump's choice will be an interesting one. He may fill Kugler's seat with the person he wants to be the next Fed chair—Kevin Hassett, currently director of the National Economic Council, is considered the frontrunner. That person could then be elevated to chair when current Fed Chair Jerome Powell's term ends in May 2026, though the person would have to go through a second confirmation process in the Senate.

The president fired the head of the Bureau of Labor Statistics (BLS), raising questions about the reliability of government data. Trump fired Erika McEntarfer, a career government economist (mostly at the Census Bureau) who had headed up the BLS since being confirmed 86-8 by the Senate in 2024. Trump was upset about the surprisingly soft jobs numbers that were released on August 1st, and particularly about significant downward revisions to May and June data that revealed the jobs market to be poorer than expected. He accused McEntarfer, without evidence, of "faking" the jobs numbers for political reasons. The firing has rattled economists and some investors, as concerns grow about the reliability of government data. Expect this to be a big focus of the Senate confirmation hearing this fall for whomever the president nominates.

CFTC chair approval vote was postponed until fall. A key Senate committee vote on the nomination of Brian Quintenz as chair of the Commodity Futures Trading Commission (CFTC) has been postponed twice, leading to speculation that the White House may be reconsidering his nomination. Quintenz, a former commissioner at the agency who more recently has been an executive at a cryptocurrency company, was scheduled to receive a vote in the Senate Agriculture Committee twice in recent weeks, but the vote has not happened. The committee must approve his nomination before a final vote of the full Senate can be scheduled. The uncertainty is just the latest twist in the crazy saga of the CFTC, which stands to take on much broader responsibilities for cryptocurrency oversight in the near future. But the agency is in turmoil. It currently has only two of its five commissioners and both have announced that they will soon resign.