House Republicans are pledging to play hardball with the debt ceiling to secure spending cuts, raising fears about a national default. We’ll also look at the messaging battle over Medicare and Social Security cuts, Jamie Dimon’s take on the interest rate hikes, and more.
But first, see how many House members voted for a bipartisan China select committee.
Welcome to On The Money, your nightly guide to everything affecting your bills, bank account and bottom line. For The Hill, we’re Sylvan Lane, Aris Folley and Karl Evers-Hillstrom. Someone forward you this newsletter?
McCarthy concessions spur default, shutdown fears
The concessions Speaker Kevin McCarthy (R-Calif.) agreed to in a bid to appease conservative rebels set up showdowns this year with Senate Democrats and President Biden on the debt limit and the annual spending bills — heightening the danger of a national default or a government shutdown, political strategists say.
McCarthy’s promises all but guarantee a standoff with Senate Democrats and Biden later this year, particularly those to attach spending cuts to legislation to raise the debt limit and to cap discretionary spending at fiscal 2022 levels.
- Democrats have refused to negotiate adding spending cuts or other fiscal reforms to any debt limit legislation, and they say McCarthy’s planned cuts are a nonstarter.
- McCarthy, meanwhile, will be under pressure to draft bills that deliver on the promised spending cuts or face the threat of revolt that could cost him the gavel.
- That may pigeonhole Congress into passing continuing resolutions, or worse, raise the threat of a historic default that experts say would wreck the world economy.
“With the debt-ceiling issue, you’re talking about defaulting on the government’s full faith and credit. I don’t know how you can do any greater harm to this country than doing that,” said Jim Dyer, a senior adviser at Baker Donelson with 30 years of experience working on the House Appropriations Committee.
Alexander Bolton has the story here.
Read more reactions from Capitol Hill:
White House turns talk of Medicare, Social Security cuts against GOP
The White House is turning the tables on House Republican lawmakers when it comes to conservative-led spending proposals that Democrats warn could mean cuts to crucial programs like Medicare and Social Security.
“They are going to try to cut Social Security and Medicare. It could not be clearer,” White House chief of staff Ron Klain tweeted Monday, sharing a clip of Rep. Michael Waltz (R-Fla.) saying on Fox Business Network that major spending cuts would likely require changes to entitlement programs.
- Strategists and White House officials believe that the possibility of Republicans holding the debt ceiling hostage in exchange for spending cuts is both economically dangerous and a political loser for the GOP.
- House Oversight Committee Chairman James Comer (R-Ky.) pushed back, saying that Republicans want to balance the budget and make spending cuts in “every area of state government except Social Security and Medicare.”
Alex Gangitano and Brett Samuels have more here.
JP Morgan Chase CEO says Fed rate hikes might need to exceed expectations
JP Morgan Chase CEO Jamie Dimon said the Federal Reserve may need to raise interest rates this year beyond what it is expected to get inflation under control.
Dimon told Maria Bartiromo in an interview on her Fox Business show, “Mornings with Maria,” on Monday that he supports the Fed slowing down its pace of rate hikes at this point and believes the hikes should be paused once interest rates reach 5 percent, as the world expects. He noted that the increases throughout 2022 were “the fastest we’ve ever seen.”
- The Fed raised interest rates by 0.5 percentage points to a range of 4.25 to
4.5 percent last month, a more modest increase than the hikes that preceded it as inflation showed signs of alleviating. The agency had raised rates by
0.75 points four consecutive times earlier last year as inflation soared to its highest level in decades.
- Fed Chairman Jerome Powell, who has said he is willing to take the necessary steps to get inflation back under control even if it causes an economic downturn, said at a press conference last month announcing the 0.5-point increase that the Fed has more work to do.
The Hill’s Jared Gans has more here.
Coinbase laying off nearly 1,000 employees amid crypto downturn
Coinbase is laying off 950 workers — roughly one-fifth of its workforce — as the crypto industry struggles to keep its footing.
Coinbase CEO Brian Armstrong told employees Tuesday that the company is suffering from a downturn in crypto values and the fallout from the collapse of crypto trading platform FTX, which had been backing numerous crypto companies.
- Armstrong said that Coinbase is shutting down “several projects where we have a lower probability of success” as part of an effort to slim down its operations. The company expects the layoffs to reduce costs by 25 percent over the next quarter. It’s the second wave of layoffs for Coinbase, which cut
18 percent of its staff in June after crypto values took an initial plunge.
- Investors steadily pulled their money out of crypto in the second half of last year, gravitating away from risky bets amid rising interest rates. The crypto market cap sits at $848 billion, down from nearly $3 trillion at its peak in November 2021.
Karl digs into this here.
Good to Know
A new survey found that U.S. small business confidence has dropped to a six-month low and that inflation and difficulty in filling positions were the top issues cited.
Other items we’re keeping an eye on:
- The World Bank warned on Tuesday that any adverse shocks to the global economy in 2023 could trigger a recession.
- House Republicans are battling over reductions to defense spending, with some in the GOP downplaying the potential for Pentagon cuts and Democrats warning a small group of conservatives could lead to big budgetary cuts.
- Republicans significantly retooled the focus of the House panel investigating the government’s response to the coronavirus pandemic, a move that aligns with the new majority’s oversight focus.
That’s it for today. Thanks for reading and check out The Hill’s Finance page for the latest news and coverage. We’ll see you tomorrow.