Washington On One - February 2, 2026

THE LEDE:  Yep…The US Government is partially shut down…Trump picks Kevin Warsh to lead Federal Reserve, tapping central bank critic…Trump’s Iran moves rattle Arab allies…Trump sues IRS for $10B over leaked tax returns…Senate confirms new Southern Command chief, Air Force No. 2…WTO sides with China in clean energy dispute against US…CMS names drugs for third round of Medicare negotiations…Treasury issues general license allowing trading of Venezuelan crude…SBA suspends 1,000 firms from 8(a) federal contracting program…TrumpRx launch delayed (we’ll save the Obamacare delays joke)… CFTC chair orders staff to draft new prediction market rules…Michael Grimes to exit Trump investment accelerator as Lutnick takes over…FCC votes to expand Wi-Fi use in 6 GHz band…

THE WEEKAHEAD:   All eyes are on the House today to end a short government shutdown. The House came back earlier than expected so that members can fund the government as soon as possible.  Negotiations will also continue on the DHS funding bill. Once the House approves the funding package of five full-year appropriations bills and the two-week CR for DHS, lawmakers will need to find an agreement on full-year DHS funding.  Monday: The House will take votes on a government funding package to end a short shutdown.  The House Rules Committee will meet at 4 p.m. to set up consideration of the appropriations bills and resolutions condemning the Clintons.  The Senate returns at 5:30 p.m.  Tuesday: The Senate HELP Committee will hold a hearing on NIH modernization with NIH director Jay Bhattacharya.   The Senate Commerce, Science and Transportation Committee will hold a markup on several bills.  The Senate Judiciary Committee will hold a hearing on Nazis and Swiss banks and another hearing on the proposed Netflix-Warner Bros. transaction.  The House Judiciary Committee will hold a markup on bills to ban transgender women in sports and a constitutional amendment to require a balanced budget.  The House Education and Workforce Committee will hold a hearing on AI in the workforce.  The House Energy and Commerce Committee will hold a hearing on fraud in Medicare and Medicaid.  Wednesday: The Senate Environment and Public Works Committee will hold a hearing on cybersecurity to protect the nation’s water infrastructure.  The Senate Commerce, Science and Transportation Committee will hold a hearing on the future of self-driving cars.  The Senate Homeland Security and Governmental Affairs Committee will hold a markup on several bills regarding the district.  The Senate Judiciary Committee will hold a hearing on several nominations and another hearing on fraud in Minnesota.  The House Financial Services Committee will hold a hearing on the Financial Stability Oversight Council’s annual report to Congress.  The House Education and Workforce Committee will hold a hearing on the One Big Beautiful Bill’s measures related to universities.  Thursday: The Senate Banking, Housing and Urban Affairs Committee will hold a hearing on the Financial Stability Oversight Council’s annual report to Congress.

NUMBERS:  FED holds rates…The U.S. clean energy industry lost at least 10,000 manufacturing jobs last year, part of an overall decline that saw the country shed about 72,000 manufacturing jobs in 2025… The monthly U.S. goods and services trade deficit nearly doubled in November to $56.8 billion, following two months of sharp declines in the wake of President Donald Trump’s new reciprocal tariffs, a Commerce Department report released Thursday showed.

SHUTDOWN:  The federal government is currently in a partial shutdown because Congress missed the midnight deadline on Saturday, January 31. The primary cause is a deadlock over Department of Homeland Security (DHS) funding following the fatal shooting of a second Minnesotan, Alex Pretti, by federal agents in Minneapolis.  Why the Shutdown Happened   DHS Standoff: Senate Democrats refused to support a large "minibus" spending package unless the DHS funding bill was separated. They are demanding new accountability measures for ICE and CBP agents following the recent violence in Minnesota.  Procedural Split: The Senate eventually agreed to split the package, passing five full-year funding bills (Defense, Labor-HHS, etc.) while placing DHS on a two-week stopgap (through Feb. 13) to allow for further negotiations.  Timing Lapse: Because the Senate amended the bill and the House was already in recess, the House could not vote on the new version before the Friday night deadline.  Current Status  The shutdown impacts roughly 78% of the federal government, as the agencies covered by those five bills—including Defense, Education, and Health—have seen their funding lapse. While essential personnel (like active-duty military and TSA agents) continue to work, they are doing so without immediate pay.  The House is expected to reconvene today, Monday, Feb. 2, to vote on the Senate-passed deal. If it passes, the shutdown will end, and the focus will shift to a 14-day deadline to reach a permanent agreement on DHS policy and funding.

FED CHAIR:  President Donald Trump announced Friday his nomination of Kevin Warsh to succeed Jerome Powell as Chair of the Federal Reserve. Warsh, 55, is a former Fed governor and Morgan Stanley banker who currently serves as a fellow at the Hoover Institution. The president, who has frequently criticized the central bank for failing to cut interest rates, praised Warsh as "central casting" and predicted he will be one of the greatest chairs in the institution’s history.  The nomination marks a pivotal moment for the Federal Reserve’s independence. The Trump administration recently initiated a criminal investigation into Powell regarding $2.5 billion in headquarters renovations, a move Powell characterized as a pretext for political intimidation. While Warsh has historically been viewed as an inflation hawk, he has recently aligned with Trump’s calls for lower rates and a reduced Fed balance sheet.  Warsh faces a potentially difficult confirmation process. Senator Thom Tillis has vowed to block any nominee for the post until the investigation into Powell is fully resolved. If confirmed, Warsh would take over in May 2026, inheriting a fractured board and a mandate to modernize the bank while navigating the president’s demand for personal loyalty.

WTO:  The World Trade Organization (WTO) ruled in favor of China on Friday, finding that certain U.S. clean energy tax credits violate international non-discrimination rules. The dispute settlement panel recommended that the U.S. withdraw the offending investment and production credits by October 1.  Notably, the panel did not rule on the high-profile electric vehicle (EV) tax credits originally challenged by Beijing. Following the 2024 election, the Republican-led Congress passed the "One Big Beautiful Bill Act" (H.R. 1) in July 2025, which terminated those specific subsidies and prompted China to withdraw that portion of its complaint.  The ruling underscores the shifting U.S. climate policy landscape. While the Biden-era Inflation Reduction Act (IRA) utilized domestic content requirements to limit Chinese influence in the supply chain, the GOP’s H.R. 1 aggressively phased down wind and solar incentives while introducing stricter "foreign entity of concern" rules.  Although China led the formal challenge, over two dozen nations—including the EU, Japan, and Canada—joined as third parties. These allies previously criticized the IRA's discriminatory nature, though the Biden administration had partially mitigated tensions through commercial leasing workarounds before the subsidies were repealed by the current Congress.

DRUG PRICING:  The Centers for Medicare and Medicaid Services (CMS) announced Tuesday the next 15 drugs selected for price negotiations under the Inflation Reduction Act. The list—which includes Eli Lilly’s Trulicity and Allergan’s Botox—marks the third cycle of a program the Trump administration continues to implement to lower costs for the most expensive Medicare medications.  Negotiations will take place throughout 2026, with adjusted prices effective January 1, 2028. CMS Administrator Mehmet Oz emphasized that the move targets "fair prices" and program accountability. Simultaneously, HHS Secretary Robert F. Kennedy Jr. issued guidance for TrumpRx, a new initiative allowing manufacturers to sell drugs directly to patients. This legal framework clarifies that such direct-to-consumer sales, if not billed to federal programs, do not violate anti-kickback laws.  The pharmaceutical industry, represented by PhRMA, criticized the negotiation list as "government price setting" that stifles innovation, while AARP praised the administration for prioritizing drug affordability for seniors.  Selected Drugs for 2028 Price Applicability:  Diabetes/Autoimmune: Trulicity, Tradjenta (renegotiation), Cosentyx, Entyvio, Orencia, Xeljanz.  Cancer/Specialty: Biktarvy (HIV), Kisqali, Verzenio, Erleada, Lenvima.  Other: Botox, Anoro Ellipta (COPD), Cimzia, Rexulti, Xolair.

IRAN:  On Friday, January 30, the Treasury Department issued sweeping new sanctions against the Iranian Ministry of Interior and several digital asset exchanges, citing the regime’s violent crackdown on nationwide anti-government protests. Secretary of the Treasury Scott Bessent stated the goal is to make the Iranian regime "broke again," specifically targeting the "shadow fleet" of tankers used to bypass oil sanctions.  Tensions escalated militarily as President Trump moved a "massive armada," including the USS Abraham Lincoln carrier strike group, into the region. In response, Iranian Supreme Leader Ali Khamenei warned on February 1 that any U.S. strike would trigger a "regional war" rather than a limited conflict. Simultaneously, satellite imagery from late January revealed new construction at the Natanz and Isfahan nuclear sites—which were significantly damaged by U.S. and Israeli strikes in June 2025—suggesting a possible effort to salvage materials or hide remaining capabilities.  Despite the brinkmanship, a potential diplomatic breakthrough emerged. Reports on Monday, February 2, indicate that Turkey, Egypt, and Qatar are mediating a secret meeting in Ankara between White House envoy Steve Witkoff and Iranian officials. President Trump told reporters aboard Air Force One that Iran is "seriously talking" to the United States to avert military strikes. While Iranian Foreign Minister Abbas Araghchi expressed confidence that a deal on the nuclear program is achievable, he emphasized that talks must be "fair and equitable."

VENEZUELA:  The Treasury Department issued a general license (GL 46) Thursday authorizing companies to trade and transport Venezuelan crude, further easing sanctions following the U.S. apprehension of Nicolás Maduro. The license allows for the lifting, sale, and refining of Venezuelan oil by established U.S. entities, provided all contracts are governed by U.S. law.  This measure expands an effort previously limited to specific licenses granted to firms like Vitol and Trafigura. Those initial selections drew scrutiny due to past bribery settlements and significant campaign donations to President Trump by senior traders. Secretary of State Marco Rubio defended the move as a necessary short-term stabilization measure, confirming that oil proceeds—currently $200 million—are being held in a custodial account in Qatar before moving to the U.S. Treasury.  While the license facilitates trading, it does not yet permit new drilling or extraction. Under the January 9 "Foreign Government Deposit Funds" executive order, all monetary payments to sanctioned entities must be deposited into U.S.-controlled accounts to ensure funds benefit the Venezuelan people rather than malign actors. Transactions involving Russia, Iran, China, or Cuba remain strictly prohibited. Meanwhile, OFAC is reportedly drafting specific licenses for companies like Chevron and Global Oil Management Group to expand in-country operations as Venezuela moves toward privatizing its energy sector.

USMCA:  U.S. Trade Representative Jamieson Greer and Mexican Economy Secretary Marcelo Ebrard agreed Wednesday to begin formal discussions on reforming the U.S.-Mexico-Canada Agreement (USMCA) ahead of its mandatory July review. The talks will focus on strengthening industrial rules of origin, critical minerals collaboration, and combating regional "dumping" of manufactured goods.  This engagement signals a shift from previous administration threats to abandon the trilateral pact for bilateral deals. Meanwhile, Canadian Prime Minister Mark Carney expressed optimism, confirming that Canada is prepared for the review following recent "cordial" discussions between Greer and Canadian Trade Minister Dominic LeBlanc.  The three nations have until July 1 to extend the pact for 16 years. Failure to agree would trigger annual reviews until the agreement’s potential 2036 expiration. While the USMCA currently provides duty-free access, Ambassador Greer has emphasized that a "rubberstamp" extension is unlikely without resolving long-standing issues, including drug-trafficking cooperation and labor enforcement.

CANADA:  U.S.-Canadian relations reached a critical rupture point over the past week, marked by aggressive trade threats and a fundamental shift in Canadian foreign policy. The escalation peaked on Thursday, January 29, when President Trump threatened to decertify all Canadian-made aircraft and impose 50% tariffs on new planes. This move followed a dispute over Gulfstream jet certifications, with the President accusing Canada of blocking American business jets. The threat caused a sharp decline in shares for Quebec-based Bombardier and sparked warnings of a transportation disaster for U.S. regional airlines like Delta and American, which rely heavily on Canadian-built regional jets.  The rhetorical battle intensified following Prime Minister Mark Carney’s address at the World Economic Forum in Davos. Carney declared the U.S.-led rules-based order over and urged middle powers to pursue strategic autonomy. President Trump retaliated by rescinding Carney's invitation to the Board of Peace and threatening 100% tariffs in response to Canada’s recent trade deals with China regarding agriculture and electric vehicles. The President asserted that Canada only thrives because of the United States.  Despite this friction, U.S. Trade Representative Jamieson Greer and Mexican officials agreed on January 28 to begin formal discussions on USMCA reforms ahead of the mandatory July 2026 review. While Canada has expressed readiness for the talks, the administration has signaled it may treat the pact as a zombie agreement—neither dead nor fully functional—using sectoral tariffs on steel and aluminum as leverage for concessions on data sovereignty and Buy American provisions.

CRYPTO:  The White House will host a meeting Monday, February 2, with cryptocurrency and banking executives to break a legislative impasse over digital asset market structure. The summit, organized by the administration’s crypto council and led by advisors David Sacks and Patrick Witt, aims to resolve a fierce dispute regarding stablecoin "rewards" programs.  Banking groups are lobbying to ban these programs in the pending CLARITY Act, arguing they act as unregulated deposit substitutes. Crypto firms, including Coinbase, contend that these rewards—which differ from direct interest prohibited by the GENIUS Act—are essential for innovation. This industry rift recently caused the Senate Banking Committee to stall the bill after Coinbase withdrew its support.  Blockchain Association CEO Summer Mersinger confirmed her group's participation, praising the White House for seeking a compromise. The meeting follows a partisan Senate Agriculture Committee vote to advance a separate version of the bill, highlighting the urgency for a unified federal framework.

STUDENT LOANS:  The Department of Education released a draft rule Thursday implementing student loan overhauls mandated by the "One Big Beautiful Bill Act." The proposal introduces annual and aggregate loan caps for graduate and professional programs to curb tuition inflation.  Effective July 2026, the Grad PLUS program will be eliminated for new borrowers. New graduate students will be capped at $20,500 annually ($100,000 aggregate), while professional students may borrow up to $50,000 annually ($200,000 aggregate). The department designated 11 eligible "professional" fields—including medicine, law, and theology—notably excluding nursing and physical therapy, sparking industry pushback.  Repayment is simplified into two options: a Tiered Standard Plan (10–25 year fixed terms) and the Repayment Assistance Plan (RAP). RAP calculates payments based on income and family size, capping interest to prevent balance growth. The rule enters the Federal Register Friday, with public comments due by March 2.

PREDICTION MARKETS:  In his first public remarks since taking office, CFTC Chair Mike Selig announced a major regulatory pivot intended to provide "clear standards" for the prediction market industry. Selig has directed staff to draft a new event contracts rule and officially withdraw a 2024 proposal that would have banned wagers on elections and sports. He also rescinded a 2025 staff advisory that cautioned firms against offering sports-related products, stating the guidance had contributed to market uncertainty.  A central component of this shift is the CFTC’s commitment to defending its exclusive jurisdiction over these markets. Selig signaled that the agency is reassessing its role in ongoing litigation, specifically challenging efforts by state regulators in New Jersey and Maryland to apply local gaming laws to federally regulated exchanges. By asserting federal preemption, Selig aims to solidify prediction markets as legitimate financial tools for hedging and price discovery rather than illegal gambling. 

NO, IT IS NOT 1998:  The House Committee on Oversight will release reports to accompany resolutions recommending holding former President Bill Clinton and former Secretary of State Hillary Clinton in contempt of Congress for refusing to comply with subpoenas in its Epstein investigation.  What is interesting here is the lack of Democratic aircover for the former First Couple.

SOMETHING COOL:  President Donald Trump signed an executive order Friday to launch the Freedom 250 Grand Prix of Washington, D.C., the first IndyCar street race in the capital’s history. Scheduled for August 21–23, 2026, the event is a cornerstone of the nation’s 250th-anniversary celebrations.  The order mandates the Departments of the Interior and Transportation to designate a race route within 14 days that showcases the National Mall and the city’s iconic monuments. Federal agencies are directed to expedite all permits and authorizations necessary for the competition, which will be free to the public.  During the Oval Office signing, Transportation Secretary Sean Duffy anticipated the spectacle of cars reaching 190 mph on Pennsylvania Avenue, while Interior Secretary Doug Burgum highlighted the merger of American history with automotive innovation. President Trump, joined by IndyCar owner Roger Penske, expressed enthusiasm for the economic and cultural impact of the race, noting it will be a historic first for the capital since horse racing occurred during the Jefferson administration.  Let’s start those engines….and FILL THE POTHOLES!!!!!