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Both the Senate and House passed a $9 billion rescissions package (see below). The Senate also confirmed several Trump administration nominees. The House passed three bills to regulate digital assets and cryptocurrencies (see below) and the fiscal year 2026 defense funding bill (see below).

The Senate will continue to confirm Trump administration nominees and vote on their first fiscal year 2026 spending bill on Military Construction-Veterans Affairs. The House will vote on bills to revise water permitting laws, increase penalties for illegal entry into the US. It will also vote on three resolutions to overturn land management plans.

Crypto Week Hiccup.

House Republicans’ “crypto week” hit a few bumps in the road as members on the far right held out on supporting a procedural motion to allow for floor consideration of various crypto bills. They were voicing frustration with having to swallow the Senate’s bipartisan bill (the GENIUS Act) to establish a regulatory framework for stablecoins (digital assets issued by private entities but backed by other assets including fiat currencies like the dollar). Ultimately, they relented after intervention from President Trump. This allowed the House to pass the GENIUS Act, which will be signed into law by Trump today. The House also separately passed the CLARITY Act, a market structure bill that would set rules for the trading of digital assets and delineate regulatory authority between the SEC (securities) and the CFTC (commodities). Though it passed with bipartisan support in the House, the market structure bill could have challenges at getting the needed support to hurdle the 60-vote threshold applicable to most legislation the Senate. A final bill banning the development of a central bank digital currency (CBDC) was attached to the must-pass defense authorization bill at conservatives’ request, but this provision likely will be stripped out of the Senate version. In addition to the legislative activity, the Trump administration is expected to issue a major report on digital asset policy as early as next week.

Rescissions.

Both the Senate and House this week narrowly passed a $9 billion rescissions package, which contains requests from the White House to cancel previously appropriated federal funds. The package included $7.9 billion in foreign aid cuts (though cuts to an AIDS relief effort were scaled back) and $1.1 billion in canceled spending for the Corporation for Public Broadcasting. Congress met the deadline of passing the package by today or the federal funds would have been spent as originally directed. Recissions are privileged motions in the Senate, meaning that they can pass with just a majority vote. It passed 51-48, with two Senate Republicans, Senators Susan Collins (ME) and Lisa Murkowski (AK), joining Democrats in opposing it. While the recissions package is miniscule in terms of the size of overall federal spending, the effort does have important implications. Some Republicans and the Trump administration are interested in having additional recissions packages as a means of effectuating greater spending cuts. However, this comes at a potential cost. Democrats have expressed frustrations that recissions and some of the spending cuts being implemented unilaterally by the Trump administration undermine the Congressional appropriations process. The drama and tension only will increase as Congress gets closer to a September 30 deadline to extend government funding or risk a government shutdown.

Big Beautiful Cost.

There is plenty of debate about the fiscal impact of the One Big Beautiful Bill (OBBB). Proponents of the OBBB point out that the law cut spending by $1.5 trillion, which is the largest spending cut in US history. However, opponents point out that any cost savings are overwhelmed by tax cuts and increases in other spending. Indeed, the bill would increase the debt by $3.3 trillion. They also argue that the cost savings in the bill are driven by large cuts to Medicaid, which could have a negative impact through the loss of health insurance for many Americans. The US did run a $27 billion budget surplus in June. This was the first monthly surplus since 2017, due to reduced spending at federal agencies (notably from the Department of Education) and increased revenues from tariffs. Nevertheless, the US continues to face long-term fiscal challenges. Notably, net interest payments on the national debt are projected to hit $1.2 trillion this fiscal year. That’s larger than annual defense spending. These interest payments (already about 17% of total annual spending) will continue to grow and crowd out other aspects of the budget.��

Tariff Revenue.

Tariffs only have provided a small portion of federal revenue for many decades. With three months left to go in the current fiscal year, tariffs have supplied over $100 billion in revenue to the federal government. While this is a record amount, it’s still a drop in the bucket of overall federal revenue ($4.9 trillion in the prior fiscal year). The administration currently is in the process of working out bilateral deals with various trading partners, with the threat of higher tariffs on August 1. Even in cases where the administration reaches a deal with a trading partner, there will be tariffs. An agreement announced this week with Indonesia has a 19% tariff rate on products from the country. Beyond the bilateral discussions, the administration also is in the process of imposing tariffs on various sectors and products. Tariffs serve multiple purposes for President Trump (including as a source of federal revenue) and will continue to be an important feature of the Trump administration’s trade policy. There’s no free lunch as the economist Milton Friedman said, and it remains to be seen whether the emergence of tariffs as a source (albeit a still small one) of federal revenue is a positive economic development.

More Fed Drama.

Rumors were flying earlier this week about President Trump’s intent to fire Federal Reserve Chairman Jay Powell. There are legal protections in place that would prevent Powell from being fired without cause. Such a move also could upset markets. President Trump backed away from this notion, though Powell will continue to be a convenient foil for the president. President Trump and various surrogates have been critical of Powell’s conduct of monetary policy. They also have complained about the cost of a renovation of the Fed’s facilities and have considered using this as a basis to fire Powell. Powell’s term as chairman expires in May of next year. President Trump has made no secret of his interest in replacing him and is actively considering candidates. He could name his pick well in advance of the expiration of Powell’s term (the nominee needs to go through the usual process of Senate confirmation regardless of when Trump announces his decision). We don’t expect President Trump to fire Chairman Powell, but the intrigue and criticism will continue.

Russia Sanctions.

As we mentioned last week, there is a bipartisan Senate bill with 85 cosponsors that would increase already high sanctions on Russia. The bill would give President Trump the authority to impose secondary tariffs of up to 500% on imported goods from countries that trade with Russia (including China, India and Brazil). It also would authorize an increase in tariffs (to at least 500%) on remaining US imports from Russia. These would be less forceful than the tariffs on Russia’s trading partners as high sanctions already have greatly reduced trade between the US and Russia. The bill however was put on pause this week when President Trump threatened to impose secondary tariffs of up to 100% on countries that trade with Russia if a peace agreement isn’t reached within 50 days. The US also announced it would sell weapons to NATO countries for distribution to Ukraine. The Trump administration wants to leave the Senate bill on ice for now and once again try to negotiate with Russia.

Defense Spending.

The House this week advanced a bill to appropriate $831.5 billion of defense spending for fiscal year 2026. The funding total remains the same as the current fiscal year since the reconciliation bill already included $150 billion in additional defense spending. This would bring the total defense spending to almost $1 trillion for the next fiscal year. The bill prioritizes spending for modernizing strategic nuclear forces, fighter aircraft and submarine manufacturing and the proposed air and missile defense system (the “Golden Dome”). It includes funding to reform the Pentagon’s weapons procurement process and a 3.8% pay increase for service members. It also provides additional support for programs (like an air and missile defense system and shipbuilding) already receiving funding from the reconciliation bill. Both the House and Senate also are working on their versions of the defense policy bill. Both chambers will work this fall to reconcile differences in defense spending and pass final bills by the end of the year. Republicans’ priority to reduce federal spending will not be reflected in defense spending.

Redistricting Battles.��

Earlier this week, President Trump raised eyebrows when he said that Texas would redraw their Congressional districts so that Republicans could gain five seats. While there have been rumors of Republicans redrawing the Texas map for months, creating a map that would allow for five pickups also could put more incumbent Republicans in a vulnerable position in any Blue wave. Democrats have threatened to retaliate in Blue states in a tit for tat redistricting battle. However, even as House Minority Leader Hakeem Jeffries (D-NY) calls for Democrats to respond, it’s unclear how much leverage they really have. Democratic maps in states like Illinois, New Mexico, and Nevada have already been maximized, and court challenges in places like Wisconsin are moving too slowly to offer help before the midterms. California and New York remain possible targets for Democratic gerrymandering, but both states use independent commissions, thereby limiting party control. These limited opportunities for Democrats likely wouldn't match Republican’s proposed redistricting in Texas, not even factoring in other potential Republican redistricting gains.��Structural reforms Democrats once championed may now be dulling the blades they need in a mid-cycle redistricting arms race.��