The US House representatives lost the most recent rules vote on defense appropriations bill.
House Speaker Kevin McCarthy is struggling to unite his Republican colleagues around a temporary funding bill to prevent a federal government shutdown at the end of the month. Despite ongoing negotiations, McCarthy is running out of options as the deadline approaches. Even if he manages to pass a conservative spending plan in the House, it is likely to be rejected by the Senate, where Democrats hold the majority.
McCarthy’s leadership is being questioned, especially after a group of GOP lawmakers from the House Freedom Caucus joined Democrats to block a defense bill which typically is a no-brainer. McCarthy is trying to push a stopgap bill that would cut many government services by 8% but spare defense and veterans accounts. However, conservative holdouts want these cuts to be in place for a full year.
Amid this deadlock, bipartisan groups in both the House and Senate are exploring alternative solutions to fund the government. President Joe Biden’s request for an additional $24 billion in aid for Ukraine is also hanging in the balance. The situation remains tense as lawmakers scramble to find a solution before the government runs out of money.
When things get tight in Washington, they tend to hurt equities temporarily (politically it is not good to have a government shutdown). However, with deficits moving higher, rates also likely to remain high increasing interest costs on those deficits, and risk of slower growth as the Fed looks to stop inflation (i.e. tax receipts), all may lead to more digging in by conservative/spending hardliners.
With the majority of the Republicans in the House having problems with some GOP members wanting even more restrictions on spending, while Dems don’t want the current proposal, that spells trouble for McCarthy.