Washington’s Big Battles: Spending, Trade, and the Fed

September 10, 2025 | By JT Taylor Global Macro Analysis Market Perspectives

Key policy battles this fall could set the tone for markets and the economy in 2026.

What You Need To Know

Concerns about Federal Reserve independence are resurfacing as a short-term appointment raises questions about political influence and its potential impact on monetary policy.
Lawmakers face a tight timeline to resolve government funding and ACA tax credit negotiations, with the risk of a shutdown adding to fiscal uncertainty.
Tariff disputes and a pending Supreme Court review keep trade policy in flux, while negotiations with major partners could influence global markets well into 2026.

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As Congress returns from its summer recess, Washington faces a packed and contentious agenda. President Donald Trump remains at the center of it all, determined to push his priorities at full speed even as economic pressures mount and the 2026 midterms draw closer.

The immediate challenge: avoiding a government shutdown as funding runs out at the end of September. Beyond that, lawmakers must navigate tariff uncertainty, defense spending strategy, and a shifting political landscape that could shape policy for years to come.

Trump’s end-of-year agenda is fluid, driven by his perception of political strength. In the weeks ahead, expect high-stakes negotiations, partisan brinkmanship, and decisions with lasting economic and geopolitical consequences.

What’s Driving Washington Now

Since signing the sweeping One Big, Beautiful Bill Act earlier this summer, Trump has turned his attention outward—leaning into foreign policy flashpoints in Ukraine and the Middle East, escalating trade disputes, and amplifying his tough-on-crime messaging. These moves have dominated headlines, but they’ve also left much of his domestic legislative agenda on pause.

Now, with Congress back in session and a growing list of unresolved priorities, that dynamic is about to change. Trump faces a growing to-do list and a Republican majority eager to deliver results before the 2026 midterms. His approach remains characteristically aggressive: push priorities at breakneck speed, sidestep bipartisan compromise where possible, and frame every fight with an eye toward the future.

Private Equity

Exploring the Appeal of Small-Mid Private Equity

Small- and mid-sized private-equity funds have historically outperformed their larger peers, showing greater resilience through market cycles.

Fed Independence Under the Microscope

As Trump accelerates his domestic agenda, attention isn’t limited to Capitol Hill. Monetary policy is entering the political spotlight as well, with a controversial Federal Reserve nomination raising fresh questions about the central bank’s independence.

Stephen Miran, Trump’s nominee to fill the remainder of Fed Governor Adriana Kugler’s term (expiring January 31, 2026), surprised senators during his confirmation hearing by announcing he would take an unpaid leave of absence rather than resign from his role as chair of Trump’s Council of Economic Advisers, if confirmed.

The move has raised concerns about Fed independence, coming shortly after the dismissal of Fed Governor Lisa Cook. Senate Republicans have largely downplayed those concerns, arguing that the short duration of Miran’s potential service (roughly four months) makes the arrangement acceptable. Some acknowledged the situation is unusual but not disqualifying.

Miran has previously supported reforms that would give the president more influence over the Fed, but during the hearing he emphasized respect for independent monetary policymaking. Republicans on the Banking Committee expressed confidence in his objectivity, while Democrats criticized the arrangement as undermining the Fed’s autonomy. The White House is pushing for a quick confirmation, aiming for Miran to be seated in time for the Fed’s September policy meeting. Even if the timeline slips, his confirmation would likely follow soon after. If nominated for a longer term in the future, Miran said he would resign his White House role.

Why it matters: Even a temporary perception of political influence over the Fed can affect confidence in monetary policy and shape expectations for interest rates and inflation. While markets are unlikely to react sharply to a short-term appointment, the move raises questions about how much independence the Fed can maintain in an environment in which executive influence appears to be growing. This same assertive approach is now shaping fiscal policy, as Trump and congressional leaders brace for a showdown over government funding.

Funding Fights and a Potential Government Shutdown

Earlier this year, Republicans secured a big win by getting a full-year extension of government funding for 2025 with help from Democrats, whose support was necessary to clear the Senate’s 60-vote threshold.

That cooperation is unlikely to repeat. Funding runs out on September 30, and Republicans are divided on how to proceed for fiscal year (FY) 2026. Sen. Majority Leader John Thune (R-SD) favors a short-term measure to allow more time for negotiations later in the year. House Republicans want a full-year stopgap at current levels combined with deeper spending cuts and policy changes. Speaker Mike Johnson (R-LA) is leaning toward that approach, and Trump’s team appears to support it, signaling a strategy to move forward without Democratic votes.

Tensions rose further in late August when the White House canceled $5 billion in State Department and foreign-aid funding through an untested maneuver known as a pocket rescission. The move bypassed Congress and hardened Democratic resistance, increasing the risk of a shutdown.

Democrats are approaching negotiations cautiously, aiming to assert their role in spending decisions while managing a president who often pushes the boundaries on fiscal limits. Some worry, however, that brinkmanship could alienate voters just over a year before the midterms, which could strengthen Trump’s position.

Adding to the complexity, both parties must address the looming expiration of Affordable Care Act tax credits. If they lapse, health-insurance costs could rise sharply for millions of low-income Americans. Several Republicans in at-risk districts want the subsidies extended, but conservatives insist any deal must include offsetting Medicaid cuts, creating another obstacle to a funding agreement. Yet even as lawmakers spar over how to keep the government running, one area of spending is already settled and surging: defense.

With the passage of the One Big, Beautiful Bill Act, US defense spending was pushed above $1 trillion for the first time in history.

Defense Spending Surges, but Challenges Loom

With the passage of the One Big, Beautiful Bill Act, US defense spending was pushed above $1 trillion for the first time in history. The Bill is frontloaded with $150 billion in new FY2026-2027 funding, earmarked for shipbuilding, missile defense, and nuclear modernization. Of that, more than $29 billion is directed toward naval construction, including destroyers, submarines, and autonomous platforms, along with investments in supply chains and advanced manufacturing.

While the scale of funding is unprecedented, persistent bottlenecks—such as labor shortages and limited production capacity—raise questions about how much of this money will translate into real progress. The coming months will reveal whether these constraints slow major defense contractors or if alternative solutions emerge to meet the demand.

Tariffs and Trade Policy Under Pressure

Trade policy remains one of Washington’s most volatile pressure points. In August, the Federal Circuit Court of Appeals ruled that Trump’s “Liberation Day” tariffs are illegal under the International Emergency Economic Powers Act (IEEPA). The court concluded that the law doesn’t grant tariff authority and was intended for “genuine national emergencies,” not “trade imbalances or fentanyl policy.”

What’s at stake:

50% reciprocal tariffs on trade-surplus countries
10% baseline tariffs on most other imports
Additional levies on Canada, Mexico, and China tied to border security and fentanyl concerns

The ruling sets up a high-stakes constitutional test. Economic actions of this magnitude require clear congressional authorization, and the court agreed. A fast-track Supreme Court review is expected, with oral arguments possible by late fall and a decision by year-end. For now, the tariffs remain in place under a temporary stay through mid-October.

Within this context, the administration is continuing to manage the fallout through parallel negotiations with key trade partners. The European Union (EU), Japan, and South Korea are finalizing agreements that include 15% tariffs on critical sectors such as automobiles, but progress has been uneven. Trump has been slow to reduce the 25% tariff on car exports from these countries, creating friction even among allies. The EU recently proposed eliminating tariffs on US industrial goods as a condition for easing auto tariffs, while similar concessions from Japan and South Korea remain unresolved.

Uncertainty surrounding tariffs, and the potential for sudden policy shifts, will remain a defining feature of the trade landscape well into next year.

Talks with China have also been extended to November, and discussions with Canada continue to stall following Trump’s imposition of a 35% tariff in August. These negotiations are likely to stretch into the 2026 review of the US-Mexico-Canada Agreement, introducing new hurdles for negotiators. For businesses and investors, the uncertainty surrounding tariffs—and the potential for sudden policy shifts—will remain a defining feature of the trade landscape well into next year.

What to Watch in Policy and Markets

Both ends of Pennsylvania Avenue still have a full agenda before the year closes. Lawmakers must address the long-overdue reauthorization of the Farm Bill, finalize the National Defense Authorization Act, secure FEMA funding, and consider proposals such as a ban on stock trading by members of Congress. Many of these issues have historically enjoyed bipartisan support, but the outcome of September’s spending battles will likely determine whether Washington can move forward on any of them without the gridlock and last-minute brinkmanship that have defined much of the past decade.

The policy choices made this fall will ripple through markets, influencing expectations for interest rates, trade flows, and sector performance well into 2026. Whether lawmakers can deliver stability or allow uncertainty to persist will shape not only the legislative agenda, but also the broader economic and investment landscape in the months ahead.

Talk to your financial professional to help make sure your portfolio is prepared for whatever happens in Washington, D.C.

The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. Hedgeye Potomac Research is not an affiliate or subsidiary of Hartford Funds.

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About The Author

JT Taylor

Chief Political Strategist and Macro Policy Sector Head, Hedgeye Potomac Research