Congressional Dysfunction Could Imperil Trump’s Economic Plans
Congress narrowly averted a government shutdown late last week, and the Christmas holiday week will give markets and the release of economic data a break.
But the combination of a chaotic final few days for Capitol Hill and a Federal Reserve slowing down the expected pace and number of interest rate cuts next year could prove to be an early warning sign of a rocky road ahead for Wall Street and the economy as the new year unfolds.
What reports do get released this week – consumer confidence numbers for December on Monday and new home sales for November on Tuesday – are unlikely to change the evolving narrative of an economy that is holding up well and inflation that, while abating, is still showing signs of stickiness.
The move by Congress to hold spending steady, while actually adding a few billions to the tab, does nothing to change the trajectory of federal debt growing at a rapid clip. Add in interest rates that have actually risen since the Fed began cutting in September and the debt will keep growing even as a new administration comes in vowing to get a grip on the problem.
In fact, what last week showed is how a razor-thin margin in the House for Republicans and splits within the party between fiscal conservatives and others who want to cut taxes, impose import tariffs and stoke the economy could impede the aggressive economic agenda laid out by President-elect Donald Trump.
Already, there are rumblings of discontent with Trump’s billionaire buddy, Elon Musk, and his plans to wield a machete over the federal budget. Meanwhile, House Speaker and Trump ally Mike Johnson is in a precarious position facing a vote over who will run the House in the next Congress. Last week showed the congressional wing of the party is far from united as it moves close to having full control of the levers of power in Washington.
“You are not getting tax cuts this next year without corresponding significant spending cuts that will reduce deficits,” Texas Rep. Chip Roy said in an interview with Real Clear Politics during the early days of the budget negotiations, setting out a clear warning of the hurdles that await House Republicans next year.
Trump addressed the issue of Musk’s seemingly outsized influence in the funding negotiations in a speech Sunday to conservative activists in Arizona.
“No, he’s not going to be president, that I can tell you,” Trump said. “And I’m safe. You know why? He can’t be – he wasn’t born in this country.”
Presented with an opportunity to appease voters and special interests, Republicans signed on to $110 billion in additional spending on disaster relief and aid to farmers. A promise to cut $2.5 trillion from spending over the next decade is exactly what it says it is: a promise with little else to turn it into a reality.
The last-minute compromise did not include a Trump request to abandon the debt ceiling, an issue that instead will now reappear in early 2025. Trump had thrown a monkey wrench into the negotiations when he insisted that an agreement to end the ceiling or push it off until 2029 be included.
Trump himself said little about the deal after trashing earlier versions of the compromise with Democrats that was needed to gain passage, turning instead to talking about taking control of the Panama Canal and suggesting the U.S. needs to buy Greenland.
Republicans have plans to move quickly on some of Trump’s top goals but may be forced to delay moves to extend some of the expiring tax cuts from the former president’s first term to prioritize the topics of border security and energy policy. But the tax cuts will open the door to negotiations over cutting spending that will be fractious with a slim majority in the House.
For now, though, Congress will join other Americans in taking time to celebrate Christmas. The consumer confidence number and new home sales report are expected to provide some good cheer for the time being. The contentious landscape of the next Congress can wait until another year is rung up.
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