Washington: What to Watch Now

Key takeaways

The House is poised to pass a bill to avoid a government shutdown, as it returns to Washington.
Two new members are set to join the House after special elections to fill House vacancies were held during the August recess.
Federal Reserve Chairman Kevin Warsh's first major speech boosts rate hike possibility.
Fed Governor Lisa Cook responds to President Trump's renewed attempt to fire her, denying allegations of mortgage fraud.
The national debt hits $40 trillion, setting up a difficult debt limit fight for the new Congress in mid-2027.

The House of Representatives returned to Washington on August 31 in a rare pre-Labor Day session, while the Senate remains in recess until September 14. House lawmakers are expected to vote as soon as September 1 on a "continuing resolution" to ensure that there will not be a government shutdown weeks before the midterm elections. The bill, which was approved by the Senate on August 8, would fund all government operations from October 1 (the start of the federal government's fiscal year) through December 11. Without an extension of current funding, the government would shut down on October 1.

See more: Chairman Warsh’s Jackson Hole Speech Emphasizes Price Stability

In July, the House passed its own version of the plan, which would have extended funding through December 4. The Senate lengthened that by one week and made some other changes to the measure, but the House is expected to accept those changes. Both parties have concluded that there is no political advantage to a shutdown so close to the election, so lawmakers will likely punt a longer-term funding debate to the post-election "lame duck" session of Congress.

House to swear in two new members

Two special elections to fill House vacancies were held during the August recess. Rep.-elect Aisha Wahab (D-CA), a progressive state senator, won the race to fill the remaining months of the term of former Rep. Eric Swalwell (D-CA), who resigned in April after allegations of sexual misconduct and assault. Wahab is set to take the oath of office on September 2.

Rep.-elect Everton Blair (D-GA), a former county school board chair, won the race to fill the remainder of the term of the late Rep. David Scott (D-GA). Scott passed away in April. Blair defeated Scott's daughter, Marcye, in a run-off election on August 25. Blair, however, will not be running for a full term in November as he lost a primary for the seat earlier this year. He'll take the oath of office on September 1.

Once the two new members are officially sworn in, it will narrow the margin to 218 Republicans, 214 Democrats, and one independent (who typically caucuses with the Republicans), with two vacancies. That is effectively a two-seat majority for the Republicans, which could make passing legislation tricky for Republican leaders in the weeks ahead. If just three Republicans vote against a bill that all of the Democrats also oppose, that would be enough to defeat the bill.

Federal Reserve Chair Kevin Warsh's first major speech boosts rate hike possibility

Warsh delivered his much-anticipated speech at the Fed's annual financial symposium at Jackson Hole, Wyo., on August 28. Among the biggest takeaways was his commitment to getting inflation back down to the Fed's long-sought 2% target. "Here is my standard: We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do," Warsh said. He did not commit to any interest rate moves, which is in keeping with his disdain for forward guidance. "I stand here today committed to a discipline, not a decision," he said. Nonetheless, Fed funds futures on August 31 were implying about a 66% chance of a rate increase at the September 15-16 Federal Open Market Committee (FOMC) meeting, up from about 33% on August 27, the day before the speech, according to CME Group's FedWatch tool.

Fed Governor Lisa Cook responds to president's attempt to fire her

President Trump renewed his attempt to remove Cook by sending her written notice on August 5 that he may fire her and giving her three weeks to respond. It was the latest chapter in a saga that began in August 2025, when the president first tried to fire Cook, citing allegations of mortgage fraud committed before Cook was even nominated to the Fed (she has never been charged with a crime). Cook challenged her termination, and after multiple lower courts stayed her firing and allowed her to continue serving as a member of the Fed board, the Supreme Court ruled in June that Cook had not been afforded a reasonable opportunity to respond to the allegations. The August 5 letter was the president's attempt to comply with the Court's directive. Cook and her legal team responded on August 26, denying the allegations.

The administration's next move is unclear, but it would not be surprising if another series of court challenges eventually sends the case back to the Supreme Court. The implications of the case are far broader than just the process, going directly at the heart of the central bank's independence.

National debt hits $40 trillion

The U.S. national debt hit the $40 trillion threshold on August 18, according to the Treasury Department. Interest on the debt is projected to top $1 trillion this year, making it the second-largest expenditure of the federal government after Social Security. Earlier this year, the U.S. publicly held debt exceeded gross domestic product (GDP) and is on track to break the debt-to-GDP ratio record set in the years immediately after World War II.

The debt is also rapidly approaching the debt limit, which was set at $41.1 trillion last year as part of the so-called "One Big Beautiful Bill." That means a debt limit fight is looming for the new Congress in mid-2027. Raising the debt limit has become one of the most difficult political battles on Capitol Hill in recent years, and it will be more complicated if there is a split Congress after November's midterm elections. But despite this cavalcade of worrisome data, the will in Congress to make the difficult decisions to start chipping away at the debt, or even get the annual federal budget deficit under control, seems to be at an all-time low.

Deep-dive election preview available

My latest analysis, What the 2026 Midterms Could Mean for the Markets, was published earlier this month. It's a deep dive into the battles for control of the House and the Senate, as well as some history on how markets have reacted to midterm elections and how this November's outcome may impact the policy agenda and the markets.

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