WSJ What’s News - Trump’s Federal-Aid Freeze Blocked

Episode Date: January 29, 2025

A.M. Edition for Jan. 29. After a chaotic day for government officials nationwide, a judge temporarily blocks a White House directive to pause potentially trillions of dollars in federal assistance. Plus, federal workers are given a choice: return to the office or resign and get paid for the next eight months. And with interest rates near record highs, Americans are carrying larger credit-card balances month-to-month. We ask the WSJ’s Angel Au-Yeung what this tells us about the health of the U.S. consumer. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

A judge blocks President Trump's sweeping federal assistance freeze. Plus the White House offers government workers a buyout deal. And with Americans now carrying bigger credit card balances, we'll look at what that says about the economic picture. On average, the consumer is healthy. But sometimes when you speak on averages, you miss some parts of the story. There are pockets of consumers that are just feeling the effects of inflation and high rates more than others.

It's Wednesday, January 29th. I'm Luke Vargas for the Wall Street Journal. And here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin in Washington, where a federal judge blocked federal agencies yesterday from implementing a White House effort to pause potentially trillions of dollars in federal assistance programs just minutes before the order was set to take effect. The stay in the order's implementation is set to last until Monday, when oral arguments in the case can be held. Journal reporter Ken Thomas says the ruling capped a chaotic day as government officials

nationwide struggled to understand which programs might be halted. Ken Thomas, Journalist, Journal of Public Security, New York The White House said the order wouldn't affect individual assistance programs such as Social Security and Medicare benefits, food stamps and welfare benefits. But despite the White House assurances, several states said they had difficulty accessing funding portals from the federal government for Medicaid and other services. Connecticut Senator Chris Murphy, a Democrat, said his home state's Medicaid payment system had been turned off, and as a result, doctors and hospitals couldn't get paid.

In Massachusetts, the Attorney General Andrea Joy Campbell said her state had tried to draw $41 million in Medicaid funds and couldn't access it. Despite the confusion, Republicans on Capitol Hill said no one should be surprised by this move. Dusty Johnson, a Republican congressman from South Dakota, said Trump had talked about this throughout his campaign and the new president wants to change the way D.C. operates. Separately, attorneys general from 22 states and the District of Columbia have sued to stop enforcement of the White House funding freeze, which they argue unconstitutionally

overrides Congress's power to decide how federal funds are spent. In another bid to downsize the federal government, the White House is giving federal workers a buyout offer, telling them they have until February 6th to decide whether to return to the office full-time or resign and get paid for the next eight months. White House officials estimate in-office requirements will prompt 5 to 10 percent of federal employees to quit, leading to $100 billion in savings annually, though they didn't detail how they reached that estimate. Yesterday's email to federal workers, titled Fork in the Road echoes a headline used by Elon Musk when

he purchased Twitter, now X, and told employees to commit to long hours or leave the company. Musk is working with Trump on streamlining the federal government. Senator Tim Kaine, a Virginia Democrat representing tens of thousands of federal employees, cautioned workers against taking the offer, saying that Trump could renege on the plan. The Trump administration has reversed its order to freeze nearly all foreign aid, with Secretary of State Marco Rubio saying in a memo yesterday that core life-saving programs that involve medicine, medical services, food and shelter will be exempted.

The original directive had called for a broad suspension of foreign assistance while the State Department carries out a three-month review of aid programs and sparked widespread confusion and prompted a rush of waiver applications. The directive still pauses other programs, including for assistance that involves abortion, transgender surgeries, and DEI efforts. Officials have yet to clarify whether the freeze applies to financing of weapons purchases for Taiwan and Ukraine. President Trump's pick for Secretary of Health and Human Services Robert F. Kennedy

Jr. is preparing to face the Senate today for his confirmation hearing. His skepticism of vaccines and medical research, as well as his prior support for abortion, mean that Kennedy might struggle to get some lawmakers to back him. WSJ reporter Liz Esley-White. Liz Esley-White, WSJ Reporter, WSJ News, WSJ News Kennedy needs to clear the finance committee and he's hopeful that he can get all the Republicans on it to support him. But if he doesn't, if some defect, he's going to need some Democrats to make up for

that. Democrats also find themselves in the tough position of thinking this may be the best Health and Human Services Secretary from their point of view that they're going to get from the Trump administration. Kennedy is, after all, a former Democrat. So there's a little bit of a calculation of like, this might be the best we can get. It's okay to go along with him. The reading skills of American eighth graders have fallen to their lowest level since testing

began in 1992, with just over two-thirds scoring basic or better in a closely watched federal exam. Declines in reading scores started before the pandemic but have persisted since, with slides affecting students across different states, school types, races, and economic backgrounds. The test scores carry potentially wide-ranging consequences, including reduced lifetime earnings, with students with limited reading skills less likely to graduate high school, and as adults less likely to vote and more likely to be incarcerated.

And in market news, another Chinese AI model is on the scene from e-commerce giant Alibaba. The company claims the latest version of its Quen large-language model achieves competitive performance compared to leading models from OpenAI and Meta, as well as Chinese peer DeepSeek, whose AI model sparked a market frenzy earlier this week. Meanwhile, shares of chip equipment manufacturer ASML are surging in Amsterdam after Q4 orders beat analysts' expectations as clients scrambled to meet booming AI demand. The Dutch company said it's bullish about the chip industry's long-term outlook, predicting that global semiconductor sales would top $1 trillion annually by the end of the decade.

On deck today, the Fed is widely expected to hold interest rates steady this afternoon, leading investors to hang on Chair Jerome Powell's press conference after the decision for clues on the Fed's stance toward future future rate cuts and get ready for a busy afternoon of earnings updates with Meta, Microsoft, Tesla, and IBM set to report results after the closing bell. Coming up, more Americans are only paying the minimum balance on their credit cards every month, but are those numbers as concerning as they first appear? Journal reporter Angel Al Young stops by with the answer after the break. Calling all sellers, Salesforce is hiring account executives

to join us on the cutting edge of technology. Here, innovation isn't a buzzword, it's a way of life. You'll be solving customer challenges faster with agents, winning with purpose, and showing the world what AI was meant to be. Let's create the agent-first future together. Head to salesforce.com slash careers to learn more. The cumulative effects of high interest rates and persistent inflation are catching up with an increasing number of Americans.

The journal's Angel Au Young reports that has led the share of people making only the minimum monthly payment on their credit cards to its highest level since 2012. And Angel is here to unpack what that tells us about the broader U.S. economy. Angel, there's a name for this trend in the credit card biz. Apparently it's the broader US economy. Angel, there's a name for this trend in the credit card biz. Apparently, it's the minimum payment effect. I'm curious, how is this coming up and what are the numbers showing us? In the last week and a half, the country's biggest banks have reported their earnings and Capital One started the top of the call by basically saying that they're seeing more consumers choose to make the minimum payment on their credit cards since pre-pandemic.

And a day after Capital One's earnings call, the Federal Reserve Bank of Philadelphia, they came out with a report of their own looking at the bank's trends from Q3 of last year, which set the same thing, that more American consumers are choosing to make the minimum payment in over a decade. Tell us more about what that means. Is this a sign of broader financial distress? The bank executives have said that based on what they're seeing from their consumers, it's not an incredibly concerning sign of consumer health. What Richard Fairbank said during Capital One's earnings call is that on average, the consumer is healthy. But sometimes when you speak on

averages, you miss some parts of the story. And this is something that we've been hearing from bank executives for several quarters now that on average, the consumer is fine, but there are pockets of consumers that are just feeling the effects of inflation and high rates more than others. And is there anything else that contributed to this trend? So when consumers were essentially enjoying their COVID related stimulus checks, the banks basically loosened their credit box, which means that they essentially started lending to types of consumers that they may not have lended to before, the riskier consumers, the

consumers that may have lower credit scores. And these are also the types of consumers that are likelier to make the minimum payments. So this trend of seeing more credit card holders making the minimum payment, it's also a byproduct of that trend. Soterios Johnson Just to put some numbers on this quite sizable cohort, we've now got just under 11% of all active credit card holders who are just making minimum payments that's according to the Philadelphia Fed and digging out from a debt hole, especially at this moment with credit card rates where they are is going to be especially hard, right?

Yeah. So the average credit card interest rates are at their highest level since the Federal Reserve started recording this data. Late last year, it was floating at above 20%. And these rates have generated interest from our president. President Trump, during his campaign, said that he would put a temporary 10% cap on credit card interest rates. He's not technically the first politician to have floated this kind of an idea.

Senator Bernie Sanders said something similar a number of years ago. And since Trump's comments, Senator Sanders has actually went on Twitter and said, let's work on this together. But there haven't been any specifics on how this temporary 10% cap would happen and whether it's something that Trump is thinking about right now. Nat. and whether it's something that Trump is thinking about right now. In the meantime, I'm curious what effect this situation is having on the profitability of credit card companies and banks. This is presumably sort of good news for them, at least in the short term.

When you have consumers that are carrying balances month to month and have to pay interest on it, they're paying that interest to the banks. And we've seen the fourth quarter earnings from the big banks in the last year and a half, and they're reporting record profits. paying that interest to the banks. debt. Yeah, exactly. And that's another thing that these banks have to consider because their net charge-offs, which are basically the loans that these banks no longer expect to collect, those percentages also ticked up in the fourth quarter. I've been speaking with Wall Street Journal finance reporter Angel Ao Young. Angel, thank you so much. Thanks so much. And that's it for What's News for this Wednesday morning. Today's show was produced by Kate

Bulevant and Daniel Bach with supervising producer Christina Rocca. And I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a brand new show. Until then, thanks for listening.