News: Four questions looming over the new Congress

Wednesday, January 8, 2025

Four questions looming over the new Congress

Jan 08, 2025

Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.

QUICK FIX

Republicans are officially back in control of both chambers of Congress for the first time since 2019. Now, they’re facing the hard part: governing.

With the GOP aiming to push a sweeping array of economic policy changes through Congress after President-elect Donald Trump takes office later this month, MM looks at some of the major questions hanging over the opening weeks of the 119th Congress in the world of financial services.

Can new committee leaders work together?

The new Congress has brought an almost complete turnover atop the committees overseeing Wall Street and financial policy, the Senate Banking and House Financial Services panels.

Both committees are set to be led by first-time chairs, Sen.Tim Scott(R-S.C.) and Rep. French Hill (R-Ark.). Hill said last month that he and Scott have a “terrific” relationship, but it will be subject to trial by fire as they work to push through a sweeping agenda, including cryptocurrency legislation and a rollback of Biden-era regulations.

Another X factor will be the Democrats’ committee leadership. Hill has long been known as a champion of bipartisanship, and some Democrats celebrated his ascension. But it remains to be seen how much the GOP will work across the aisle with a governing trifecta.

Sen.Elizabeth Warren (D-Mass.) is set to take over as the Senate Banking ranking member and Rep. Maxine Waters of California will again lead House Financial Services Democrats, putting two stalwart progressives in charge of the party’s approach to financial policy. They are at odds with Hill and Scott on most major issues before the committees, though both have found common ground with Republicans on some matters in the past.

Waters and Warren “are very dyed-in-the-wool progressives,” said Rep. Frank Lucas of Oklahoma, a senior Republican on House Financial Services who ran against Hill to lead the panel. “My two committee chairmen — House and Senate — have to come to grips with that as we move forward.”

How will Democrats handle Trump 2.0 nominees?

Democrats on Capitol Hill adopted a wartime posture during the first Trump administration. This time around, there are signs some may take a different approach.

Party leaders have kept quiet about controversial nominees, and some Democrats have signaled openness to backing the president-elect’s more mainstream picks. Keep an eye on whether nominees for key economic policy positions — like Treasury secretary selection Scott Bessent and SEC chair hopeful Paul Atkins — draw Democratic votes.

Some names to watch: Sen. Kirsten Gillibrand, a Democrat from New York who is friendly with the cryptocurrency industry, has signaled she is open to backing Atkins. Moderates like Sen. Mark Warner could be willing to back Bessent; the Virginia Democrat met with Trump’s Treasury pick on Tuesday and previously said he has "heard some good things” about him. Senate Minority Leader Chuck Schumer has praised Trump’s pick for Commerce secretary, Howard Lutnick.

What can Wall Street get in reconciliation?

Capitol Hill is abuzz with a GOP debate over how to advance a sweeping border, tax and energy package through the reconciliation process, which would allow it to clear the Senate without Democratic votes.

With the bill expected to contain tax legislation and other key parts of the GOP’s legislative agenda, it will become a major lobbying focus for Wall Street firms and executives who cheered on Trump’s expiring 2017 tax cuts.

It could also become a vehicle for other financial priorities. “Every individual in this building who has a piece of legislation they want to pass in the calendar year 2025 wants a seat on that bill,” Lucas said. “But this reconciliation package has to pass, so you can’t let it be overloaded.”

Will Democrats recalibrate on crypto?

Democrats ended 2024 divided over cryptocurrency policy — and the issue is set to resurface in a big way this year.

A surprising number of Democrats last year supported GOP-led legislation to overhaul how digital assets are regulated, which Republicans are expected to push again this Congress.

While some Democrats like Warren remain opposed to changes that would legitimize digital assets, an influx of new industry-friendly lawmakers — and a mountain of crypto campaign cash that is looming over the 2026 elections — could lead the party to more broadly recalibrate its approach to the issue.

It’s WEDNESDAY — If you’ve got news tips, suggestions or feedback, hit Sam up at ssutton@politico.com and Jasper at jgoodman@politico.com.

Driving the day

Fed Gov. Christopher Waller will deliver a speech on his economic outlook at an Organisation for Economic Co-operation and Development (OECD) event at 8:30 a.m. … CFTC Chair Rostin Behnam discusses derivatives regulation at a Brookings Institution event at 10 a.m. … The Fed will release minutes for the December meeting at 2 p.m. … The Securities and Exchange Commission will hold a closed meeting at 3 p.m. …

The debt ceiling

It’s big, it’s beautiful, it’s the debt limit — House Speaker Mike Johnson doubled down on his plan to include a provision that would raise the debt limit in a massive reconciliation bill. “We're gonna get the debt limit handled well before the June deadline. So we're not concerned about that,” Johnson told Meredith Lee Hill during a brief interview on Tuesday. As Meredith notes in her report, linking the debt limit to federal funding talks could mean that Republicans could create a lane for Democrats to make spending requests.

— Another protracted battle over the debt limit could further risk the U.S.’s credit rating. Two of the three major credit-ratings services — Fitch Ratings and S&P — have already downgraded the government’s bonds from top-tier status. The third, Moody’s, has had a negative outlook on the U.S.’s blue-chip rating since late 2023, saying that “political polarization within US Congress raises the risk that successive governments will not be able to reach consensus on a fiscal plan to slow the decline in debt affordability.”

— Fitch on Tuesday warned that the U.S.’s fiscal challenges are unlikely to be resolved “expeditiously” even with the GOP in control of the White House and both chambers. The company says the X-date — the day the U.S. government says it can no longer fulfill all its financial obligations – will likely arrive sometime this summer, possibly in July or August (well after the April date by which Johnson says he hopes to send a reconciliation bill to Trump’s desk).

It’s unlikely Congress will meet that April deadline, Richard Francis, a senior director of sovereigns at Fitch Ratings, told MM.

“From what we've seen already, it just seems like it's going to be very difficult to get things done in a very, very speedy manner,” Francis said. “They're talking about doing something in April — and maybe even finalizing something at the end of it April — I just, I think that's unrealistic.”

Trump on the debt limit — Trump weighed in during a press conference at Mar-a-Lago on Tuesday. “I just don't want to see a default. That's all I want,” he said. “I never talked about spending more money, necessarily… all I want to see is no default because nobody knows what would happen if there was a default. It could be 1929, and it could be nothing.”

“We'll handle it,” he added. “But debt ceiling is not about raising a lot of money, it's really just about extending it. I just want to see an extension.”

More econ news from the Trump presser — From Megan Messerly and Lisa Kashinsky: “Trump on Tuesday doubled down on his interest in annexing both Greenland and Canada, both for strategic and economic reasons. He promised that he wouldn’t use military force, only economic pressure, to make Canada the 51st U.S. state but didn’t make the same promise regarding Greenland.”

— He also repeated his threat to impose stiff tariffs on Mexican and Canadian imports if both countries don’t do more to halt the flow of fentanyl and illegal immigration, Doug Palmer reports.

Anyone got a line on Frank Sobotka? — Remember the port strike that threatened to scramble the global economy weeks before the election? The temporary fix that resolved the work stoppage expires next week. Sam Ogozalek has more on the key players, the potential economic impact and how Trump has navigated his relationship with International Longshoremen’s Association chief Harold Daggett.

Regulatory Corner

Behnam’s last pitch for new crypto rules — CFTC Chair Rostin Behnam is making one last pitch to Congress for new regulatory guardrails around the $3.5 trillion cryptocurrency market before he steps down, our Declan Harty reports. The Wall Street regulator will warn in a speech today that, as the digital assets industry becomes more closely enmeshed with traditional finance, concerns about investor protection, market resiliency and financial stability are “intensifying in the absence of federal legislation,” according to a copy of his prepared remarks.

Mike Hsu’s not-quite exit interview — With Michael Barr scheduled to step down as vice chair for supervision next month, Acting Comptroller of the Currency Michael Hsu warned the Trump administration’s incoming banking regulators against abandoning the Basel III endgame. If the U.S. walks away from Basel, other countries might start to lower their capital standards, he said.

“That’s a real risk,” Hsu told Victoria Guida. “I’ve talked to some of my counterparts. They’re really keeping a close eye on what we in the U.S. do, because if we don’t follow through on some of the bare minimum expectations … they’re going to get a lot of pressure to go down.”

Chopra isn’t going quietly — The CFPB on Tuesday finalized a rule to block the inclusion of medical debt on credit reports, our Katy O’Donnell reports, a move that drew criticism from Republican lawmakers. The agency estimates the step will remove $49 billion in debt from the credit reports of 15 million people.

Katy also reports that the agency sued the credit-reporting company Experian for allegedly failing to properly investigate consumer disputes. The complaint filed in federal court in California alleges the company violated both the Fair Credit Reporting Act and the Consumer Financial Protection Act due to its “problematic dispute-resolution processes.

On the Hill

Meet the new members — Three new Democrats are set to join the House Financial Services Committee, our Eleanor Mueller reports. They are:

—Rep. Janelle Bynum of Oregon, who defeated Trump’s Labor secretary pick, Lori Chavez-DeRemer, in the 2024 election.

—Rep. Cleo Fields of Louisiana, who previously represented a different House district in the state in the 1990s.

—Rep. Sam Liccardo of California, a former San Jose mayor whose House campaign website dedicated more than 1,000 words to outlining his pro-crypto policy views.

Bessent makes the rounds — Scott Bessent, the hedge fund CEO who Trump has picked to lead Treasury, met separately with Sens. John Cornyn (R-Texas) and Mark Warner (D-Va.), Michael Stratford reports. Both are senior members of the Senate Finance Committee, which will weigh Bessent’s nomination.

Wall Street

Back at it — JPMorgan Chase is planning to require its employees to return to the office five days a week, replacing the three-day-a-week mandate that had been in effect, Bloomberg’s Todd Gillespie and Sridhar Natarajan report. An announcement is expected in the coming weeks.

A new anti-ESG firm — Jordan Wolman reports that Derek Kreifels, who helped drive the anti-ESG movement as co-founder of the nonprofit State Financial Officers Foundation, is launching a new consulting firm that will advise institutional investors on how to align their investments with their values as a way to counter the rise of environmental, social and governance principles and diversity, equity and inclusion initiatives.

Jobs report

Josh Arnold is joining Andreessen Horowitz as a government affairs partner in Washington. He is an alum of Targeted Victory and Sen. Cynthia Lummis’ office.

Follow us on Twitter