February began with the government in partial shutdown, although the situation was expected to be resolved within days. Back in November, lawmakers ended a record 43-day government shutdown in an agreement that funded government operations through January 30th. Congress focused in January on passing the 12 appropriations bills that fund all government agencies through the end of the fiscal year on September 30th.

Six of the 12 bills are completed; agencies covered by those bills are fully funded and were not affected by the shutdown. The House of Representatives passed the other six bills and sent them to the Senate, where quick passage was expected last week. But after the shooting of a protestor by federal agents in Minneapolis, Senate Democrats blocked consideration of the bill and called for changes to the Department of Homeland Security (DHS) funding. In a deal struck last week with President Donald Trump, the Senate passed a two-week extension of funding for DHS to allow for more time to negotiate additional restrictions on Immigration and Customs Enforcement (ICE) agents. The Senate also passed the other five appropriations bills as a package, including Pentagon funding. That meant that both had to go back to the House for final votes, but the House was in recess last week. A "funding lapse" therefore began on January 31st and will continue until both bills are passed by the House.

Agencies like the Agriculture Department (food stamps) were open, and benefits like Social Security and Medicare were expected to be unaffected unless the House is unable to pass the final legislation quickly. Air traffic controllers and TSA agents at airports, while technically impacted by the shutdown, are considered "essential" and continue working during shutdowns. The IRS announced that all staff would remain on the job during the first week of February, but the SEC posted on its website that due to the shutdown it would have only "a very limited number of staff members available."

Members of the House of Representatives were scheduled to return to Washington Monday and were expected to pass both the massive five-bill package and the DHS extension, though it could take until February 3rd or longer. That will fund all agencies. But negotiators will then have just two weeks to come to agreement on a longer-term plan for the DHS. With Democrats pushing for restrictions on ICE agents, including banning the wearing of masks and mandating body cameras, reaching an agreement won't be easy.

After an unusually public months-long search process, Trump announced January 30th that he will nominate Kevin Warsh, to succeed Fed Chair Jerome Powell when Powell's term ends in May. Warsh served as a Fed governor from 2006 to 2011 and was widely seen as the runner-up when Trump nominated Powell as chair in 2017. Warsh is expected to be confirmed by the Republican-controlled Senate. But one complication is that Senator Thom Tillis (R-N.C.), a member of the Senate Banking Committee that will consider Warsh's nomination, reiterated last week that he will block any Fed nominee until a criminal investigation of Powell launched last month is resolved.

If confirmed, Warsh will face heavy pressure from the president to lower interest rates quickly. The president joked January 31st that he may sue Warsh if he doesn't lower rates fast enough. But the Federal Open Markets Committee (FOMC) has 12 voting members, of which the chair is just one, so Warsh will have to build consensus among disparate views on the committee. Once confirmed, Warsh would become chair in May and his first FOMC meeting would take place June 16th-17th.

The president announced January 30th that he will nominate veteran government economist Brett Matsumoto as the new head of the Bureau of Labor Statistics (BLS). Matsumoto has been an economist at the BLS since 2015 and has spent the last year on assignment with the White House Council of Economic Advisors. The BLS, which is responsible for reporting jobs data and other key government statistics, has been without a permanent head since August 1st when the president fired Erika McEntarfar following a large downward revision to jobs numbers. A career BLS staffer, William Wiatrowski, has been leading the agency on interim basis since then. Matsumoto's nomination is being well received by economists and investors, who were concerned that potential political interference at the agency could compromise data that is critical to the markets. Matsumoto still must be confirmed by the Senate.

The Senate Agriculture Committee approved the legislation on a party-line vote on January 29th. The bill would designate the Commodity Futures Trading Commission as the primary regulator of the crypto industry, including overseeing spot trading in bitcoin and other digital assets. But the bill faces an uncertain future because it must be merged with a companion bill from the Senate Banking Committee, which shares jurisdiction over key issues. That panel has struggled to reach consensus on its version of the legislation and recently postponed to at least March a planned vote on the measure to allow more time for negotiations. The Banking Committee bill has sparked something of an existential battle between the traditional banking industry and crypto companies over the payment of "rewards" to crypto customers who hold stablecoins. The banking industry opposes the rewards, which it argues are like high-yield deposits but without the regulations that banks must comply with regarding customer deposits. The White House is convening executives from banks and crypto companies to try to find a compromise.

Democrat Christian Menefee won a special election January 31st to succeed the late Rep. Sylvester Turner (D-Texas), who died in March 2025. Menefee is expected to take the oath of office this week, reducing the House Republican majority to 218-214. That means that Republicans can lose just one of their members on any vote, since losing two would produce a 216-216 tie and ties lose under House rules. There are three other vacancies in the House, which will be filled by special elections: one in March in Georgia, one in April for a vacant seat in New Jersey and the third in August for an open seat in California.

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