Trump Taps Kevin Warsh for Fed Chair in Major Policy Shift

The U.S. government officially entered a partial shutdown on Saturday after Congress missed a midnight deadline to approve a new spending package.

The Senate managed to pass the funding deal with a bipartisan vote of 71 to 29. However, with the House of Representatives out of town, a vote on the measure is not expected until Monday. As a result, the partial shutdown began at 12:01 a.m. Eastern Time.

Unlike the record 43-day shutdown last fall that cost the economy an estimated $11 billion, this funding gap is expected to be brief. Lawmakers from both parties have been working to isolate a contentious debate over immigration enforcement to prevent it from disrupting broader government functions.

The Sticking Point: DHS and Immigration Tactics

The core of the delay is a dispute over funding for the Department of Homeland Security (DHS) and the tactics used by its federal immigration agents.

Senate Democrats threatened to block the entire funding package after immigration agents shot a second U.S. citizen in Minneapolis. The death of nurse Alex Pretti on Saturday has led to widespread public outrage and prompted the Trump administration to de-escalate operations in the area. This was the second death of a U.S. citizen with no criminal record involving immigration agents this month.

In response, Democrats are pushing for several new restrictions on DHS agents:

• An end to roving patrols

• A requirement for agents to wear body cameras

• A prohibition on agents wearing face masks

• A requirement for agents to obtain a search warrant from a judge, not internally

Republicans have indicated they are open to considering some of these proposals.

How Congress Plans to End the Shutdown

The deal approved by the Senate provides a clear path forward by separating DHS funding from the rest of the government's budget. This allows critical agencies like the Pentagon and the Department of Labor to receive their approved funding immediately.

Meanwhile, funding for the Department of Homeland Security will be extended for just two weeks. This short-term extension is designed to give negotiators from both parties the time they need to reach a final agreement on new immigration enforcement rules.

Historically, short funding gaps are not unusual. According to the Congressional Research Service, the government has experienced 10 shutdowns of three days or fewer since 1977, most of which had a minimal real-world impact.

The U.S. government entered a partial shutdown on Saturday after Congress failed to approve a funding deal brokered between President Donald Trump and Democrats. The standoff centers on the Department of Homeland Security (DHS) following a fatal confrontation involving Border Patrol agents in Minneapolis.

The shutdown is expected to be brief, as the House of Representatives is scheduled to vote on the spending package when it returns from a week-long break on Monday. With President Trump’s support for the deal, a swift resolution is anticipated.

This marks the second government funding lapse since Trump returned to office. A previous 43-day shutdown in the autumn was the longest in history, causing widespread disruption by halting food aid for millions, canceling thousands of flights, and leaving federal workers unpaid for over a month.

What's Affected and What's Not

The current shutdown is more limited in scope because several government departments are already fully funded through the end of the fiscal year on September 30.

Key services that will continue without interruption include:

• Department of Agriculture: Food stamp distribution will not be affected.

• National Parks: Will remain open.

• Veterans' Services: Operations will continue as normal.

• Justice Department: Funding is already secured.

However, a formal shutdown process has begun for affected agencies, including the Treasury, Defense, Homeland Security, Transportation, Health and Human Services, and Labor Departments. A memo from the White House Office of Management and Budget (OMB) confirmed the procedures.

Even within affected departments, essential personnel such as military staff and air traffic controllers will remain on the job through the weekend.

The Political Standoff Explained

The funding battle escalated after a U.S. citizen, Alex Pretti, was killed during a confrontation with Border Patrol officers in Minneapolis last weekend. In response, Democrats refused to renew funding for the Department of Homeland Security without new restrictions on immigration enforcement.

The Democratic party is pushing for several key changes:

• Requiring DHS agents to use body cameras.

• Mandating judicial warrants for certain actions.

• Forbidding agents from masking their identities.

• Stopping broad immigration sweeps.

A Short-Term Fix and the Path Forward

On Thursday, President Trump and Senate Democratic Leader Chuck Schumer reached a temporary agreement to resolve the impasse. The deal proposes funding the DHS for two weeks to allow for continued negotiations while fully funding the rest of the affected government agencies through September 30.

The Senate approved the funding measure on Friday, leaving the House as the final hurdle.

"It is our hope that this lapse will be short," OMB Director Russ Vought wrote in a memo, adding that the administration is ready to reopen the government as soon as Trump signs the bill. An administration official noted that if the House passes the legislation on Monday, operations could potentially resume the same day.

The shutdown does introduce some uncertainty. It remains unclear if the Bureau of Labor Statistics will delay its monthly jobs report, which is scheduled for release on Friday. Politically, the dispute comes as polls show Trump's deportation campaign is growing unpopular with voters, creating a potential liability for the Republican Party in the upcoming midterm elections.

A partial U.S. government shutdown began early Saturday morning, triggered by a procedural delay in Congress even after the Senate overwhelmingly passed a major funding agreement.

The Senate approved a package of five spending bills with a strong 71-29 bipartisan vote. The deal also included a two-week temporary funding measure for the Department of Homeland Security, giving lawmakers more time to resolve disagreements over the agency's budget.

However, the government's funding authority expired before the House of Representatives could vote on the package. With the House not scheduled to return to Washington until Monday, a shutdown became unavoidable. This lapse in funding follows the record 43-day shutdown experienced last year but is expected to be short-lived.

Johnson Signals Support, Citing Trump's Endorsement

House Speaker Mike Johnson, R-La., indicated that the House would move quickly to resolve the situation. In a conference call with House Republicans on Friday, he announced his support for the Senate-passed deal, a decision he linked directly to President Donald Trump's endorsement of the package.

Johnson expressed his hope that the House would pass the bill on Monday. Once approved by the House, the spending legislation will be sent to President Trump for his signature.

On Thursday, Trump had encouraged lawmakers to support the deal in a post on his Truth Social platform, aiming to fund most of the federal government through the end of the fiscal year on September 30.

Federal Agencies Brace for Impact

With congressional appropriations expired, several key federal departments are now operating in a shutdown status. These include the Departments of State, Defense, Labor, Health and Human Services, Education, and Transportation, among other related agencies.

In anticipation of the funding lapse, U.S. Office of Management and Budget Director Russell Vought issued a memo to federal agency heads on Friday. He instructed that employees "should report to work for their next regularly scheduled tour of duty to undertake orderly shutdown activities."

Vought added that the administration would continue working with Congress to finalize appropriations for Fiscal Year 2026. "It is our hope that this lapse will be short," he wrote.

Inside the Senate Delay: Graham's Demands

The Senate's approval of the funding package was delayed by Republican Senator Lindsey Graham of South Carolina, who placed a hold on the measure to secure votes on his own legislative priorities. Senate leaders had originally planned a vote for Thursday night, but Graham's hold prevented it.

The deal had already separated funding for the Department of Homeland Security (DHS) into a temporary measure. This was a response to intense criticism from Democrats regarding the agency's aggressive immigration enforcement tactics in Minnesota.

Graham refused to lift his hold until he was guaranteed a vote on two key amendments:

• Sanctuary Cities: A bill to impose criminal penalties on state and local officials who "willfully interfere with the enforcement of federal immigration laws."

• Arctic Frost Investigation: An amendment requiring officials to notify senators if their phone records are obtained during a criminal investigation, a direct response to the "Arctic Frost" probe led by then-special counsel Jack Smith.

Graham had previously criticized Speaker Johnson after the House included language in its spending package to repeal a law that would have allowed senators to sue for up to $500,000 if their records were obtained during the Arctic Frost investigation.

China’s factory activity shrank in January, signaling a rocky start to the new year as sluggish domestic demand weighed on production. The official Purchasing Managers' Index (PMI) fell to 49.3, dropping from 50.1 in December and dipping below the 50-mark that separates expansion from contraction.

The reading missed the median forecast of 50.0 from a Reuters poll of analysts, highlighting unexpected weakness in the world's second-largest economy.

According to a statistician from the National Bureau of Statistics, Huo Lihui, some manufacturing sectors typically enter a slower phase in January, compounding the issue of weak market demand.

A Deeper Look at the Economic Data

The downturn was visible across several key metrics. The non-manufacturing PMI, which covers services and construction, also declined, falling from 50.2 to 49.4—its lowest point since December 2022.

A breakdown of the sub-indices reveals a broad-based decline:

• New Orders: Fell to 49.2 from 50.8 in December.

• New Export Orders: Slipped to 47.8 from 49.0.

While China’s economy met its official 5% growth target last year, buoyed by strong exports, the headline number masked significant internal imbalances. Retail sales slowed in the last quarter, contributing to fourth-quarter GDP growth hitting a three-year low.

Policymakers Scramble for Solutions

Growing concern over the persistent slump in domestic demand has prompted action from Beijing. The government has already allocated 62.5 billion yuan (US$8.99 billion) from its ultra-long special treasury bond funds. This capital is intended to support subsidies encouraging consumers to replace products ranging from home appliances to smartphones.

Meanwhile, China's central bank has cut sector-specific interest rates and indicated it has more room to lower banks' cash reserve requirements and implement broader rate cuts this year. Authorities are also shifting focus toward boosting consumption in the services sector to help absorb the output from manufacturing.

Will Beijing's Stimulus Be Enough?

Despite these measures, analysts are skeptical about their immediate impact on stabilizing growth.

"Beijing will have to do much more in coming months to deliver an annual GDP growth rate above 4.5% in 2026," noted Ting Lu, chief China economist at Nomura. "As Beijing runs out of easily implemented policy tools, policymakers may need more time to prepare more comprehensive measures."

The government has declared boosting domestic demand its top priority this year. This runs parallel to a sharpened focus on achieving technological self-reliance to guard against foreign trade restrictions. At a recent seminar, President Xi Jinping called for "developing advanced manufacturing vigorously" and pledged to "make domestic demand the main driving force of economic growth."

China is expected to set its official growth target for the year between 4.5% and 5%, reflecting a cautious approach as policymakers remain wary of a stock market bubble. Market watchers are now awaiting the private sector RatingDog PMI, which is forecast to rise to 50.3 from 50.1. The data is scheduled for release on February 2.

The US Senate passed a government spending package late Friday, but a partial government shutdown appears unavoidable as House Speaker Mike Johnson does not plan to hold a vote on the legislation until Monday.

Funding is set to expire at midnight for several key government agencies, including the Treasury, Defense, Homeland Security, Transportation, Health and Human Services, and Labor Departments. While these agencies will begin the formal process of shutting down, the partial shutdown is not expected to cause widespread disruption if it is resolved early next week.

In anticipation of the lapse, the White House budget office instructed affected agencies on Friday night to begin their shutdown procedures. Agencies typically require half a day to wind down operations and another half a day to resume them.

"It is our hope that this lapse will be short," stated White House budget director Russ Vought in a memo. An administration official noted that if the House approves the funding bill on Monday, operations could potentially reopen the same day.

A Brief Lapse or a Repeat Crisis?

This funding gap marks the second time Congress has failed to fund the government during President Donald Trump's second term. The previous spending dispute led to a 43-day impasse that disrupted food aid for millions, cancelled thousands of flights, and left federal workers unpaid for over a month.

Lawmakers are forecasting that the current spending lapse will be resolved within days. If so, it would mean few interruptions to travel, the release of government economic data, and federal employee paychecks.

Inside the Congressional Deadlock

The path to funding was complicated by disputes over immigration policy and a last-minute objection from a key Republican senator.

Immigration Enforcement at the Heart of the Dispute

The shutdown fight intensified after a US citizen, Alex Pretti, was killed during a confrontation with Border Patrol officers in Minneapolis last weekend. In response, Democrats refused to approve new funding for the Department of Homeland Security without new restrictions on immigration enforcement.

The bill passed by the Senate addresses this by funding the Homeland Security Department for only two weeks, creating a window for further negotiations. The package funds several other government agencies through the end of September.

Senator Graham's Last-Minute Obstruction

The spending package faced delays late Thursday after Republican Senator Lindsey Graham of South Carolina announced he was blocking the bill. His objection stemmed from the bill's repeal of a law that could allow him to receive millions of dollars in court judgments.

The House had previously voted unanimously to repeal the provision, which permits eight senators to sue the Justice Department over phone metadata seized during the "Arctic Frost" investigation into efforts to undermine the 2020 presidential election.

Graham has stated he intends to use the law to seek legal recourse and make a point about the separation of powers. House Republicans, who sponsored the repeal, argued the provision is a waste of money and an unfair benefit to the investigated senators.

In a speech on the Senate floor Friday, Graham directly addressed the House effort, stating, "You jammed me, Speaker Johnson. I won't forget this."

The House Prepares for a Decisive Vote

Speaker Johnson plans to bring the spending package to the House floor for a vote on Monday evening. According to a source familiar with the plan, the vote will be held under an expedited process that requires a two-thirds majority for passage.

The outcome remains uncertain, with potential resistance from both conservative and progressive wings. House Democratic leaders, who were not part of the White House negotiations, are still evaluating the package and have not yet committed to supporting it, according to a Democratic aide.

Colombia's central bank has raised its benchmark interest rate by 100 basis points to 10.25%, a move that surprised analysts and signaled a decisive stand against mounting economic pressures. The decision, the first rate hike in nearly three years, revealed a deep split among policymakers and drew immediate criticism from the government.

The aggressive hike was far beyond market expectations. A Reuters poll of 26 analysts showed that 15 had anticipated a more moderate 50-basis-point increase to 9.75%. Only one analyst predicted the full 100-basis-point jump.

Inflation Fears Drive Aggressive Policy Shift

The central bank's primary motivation is rising inflation. While December's headline inflation was 5.1%, policymakers noted with concern that core inflation accelerated from 4.85% in November to 5.02% in December. This trend moves prices further away from the bank's long-term target of 3%, plus or minus one percentage point.

Fueling these concerns, the bank's technical team sharply revised its inflation outlook for the current year to 6.3%, a significant increase from its previous forecast of 4.1%. This revision follows President Gustavo Petro's decision to raise the national minimum wage by 22.7%, a move widely expected to stoke price pressures. Analysts polled by Reuters on Friday align with the bank's new forecast, predicting consumer prices will end the year 6.32% higher.

Economic Outlook and External Pressures

Alongside domestic inflation, the bank flagged growing external and fiscal risks. It now projects the current account deficit reached 2.4% of GDP in 2025, up from 1.6% in 2024. This widening gap is attributed to strong domestic demand driving up imports while export growth remains modest.

The economic growth forecast for this year has also been trimmed to 2.6%, down from 2.9% in 2025, according to board head Leonardo Villar.

In its official statement, the bank also highlighted several external uncertainties creating a challenging environment:

• Escalating trade conflicts

• U.S. migration measures

• Geopolitical tensions

• Shifting perceptions of Colombia's sovereign risk

A Split Decision and Government Pushback

The rate hike was approved by a divided seven-member board. Four directors voted for the 100-basis-point increase, while two voted for a 50-basis-point cut, and one director favored holding the rate steady.

The government, which has a representative on the board, immediately voiced its opposition. Finance Minister German Avila stated, "The government declares its total disagreement with the decision." He argued that economic growth was on a sustainable path and that higher interest rates could harm consumption.

This official dissent aligns with the broader position of President Petro, who has repeatedly advocated for cutting the interest rate to stimulate the economy. The central bank's decisive action places it in direct opposition to the government's stated policy preference.