House recesses after Defense bill, government funding plan implode

• House Republican leaders on Thursday sent the chamber into recess, likely dashing hopes of passing a bill to fund the government in the coming days.
• The stinging defeat came after a procedural vote on a defense funding bill failed Thursday morning.
• Investors are growing concerned that a government shutdown would cut into fourth-quarter GDP and undermine confidence in the nation's ability to keep its own government open.

WASHINGTON — House Republican leaders on Thursday sent the chamber into recess, likely dashing hopes of passing a bill to fund the government in the coming days.

The schedule change was an embarrassing failure for Speaker Kevin McCarthy, a Californian who needs to unite his fractured Republican caucus to avoid a government shutdown at the end of the month.

Earlier in the day, the House failed to pass a measure that would have set the rules for debate on a Pentagon funding bill, which had been expected to come to the House floor for a final vote later Thursday.

A rules vote typically serves as a dress rehearsal for final votes, giving leadership a sense of where support stands.

Pentagon funding bills are traditionally approved by wide margins.

But the failure of the rules bill sent a stark message to House Republican leadership that their caucus was not prepared yet to come together.

For much of the day Thursday, Republicans in both the House and Senate held their breath to see what McCarthy and his lieutenants would do next.

"We want to avoid this shutdown however we can," Sen. Markwayne Mullin, R-Okla., told CNBC on Thursday.

"McCarthy is trying to work with his members to get the most conservative bill that they can pass, that can also be passed in the Senate," Mullin said.

"If we lapse in appropriations, a whole lot of very important things with the U.S. government begin a process of shuttering their services, and it will impact people," Rep. Steve Womack, R-Ark., a key House appropriator, told reporters Wednesday evening as he left a GOP caucus meeting.

During that meeting, Republicans had largely agreed on the rough outlines of a CR that would slash topline government funding well below the levels McCarthy and President Joe Biden agreed to last summer during high-stakes debt ceiling talks.

That bill would also likely contain a number of poison-pill policy riders such as border security measures, while providing no emergency funding for Ukraine — a key White House demand.

But whether such a bill could pass the House on a party-line vote was far from certain Thursday. Already, more Republicans than would be needed to sink it have publicly announced their opposition.

Meanwhile, House Democrats this week expressed a mixture of frustration and schadenfreude as they watched their opponents flounder.

"They need to end their civil war because it's hurting the American people," House Democratic Leader Rep. Hakeem Jeffries, of New York, said Thursday at a press conference. "I'm not saying they all have to like each other. But we should be able to figure out a way to get the business of the American people done."

Markets fell sharply on Thursday, driven by signs the Fed intends to raise interest rates later this year and by the ongoing United Auto Workers strike.

But investors grew increasingly concerned throughout the day that a government shutdown would cut into fourth-quarter gross domestic product and, more broadly, that it would undermine global confidence in the United States' ability to keep its own government open and operating.

Even if it were to pass next week by the equivalent of a legislative miracle, the Republican House CR would be dead on arrival in the Democratic-controlled Senate.

As Washington moved closer to a shutdown Thursday, pressure mounted on Democrats in the Senate to craft their own bipartisan CR to fund the government through the end of the year. If the upper chamber were to pass a CR with a filibuster-proof 60 votes, that bill would then go to the House.

This scenario would present McCarthy with a new dilemma: Whether to vote with Democrats and pass a bipartisan CR to keep the government operating — which would likely enrage his conservative critics, who could respond by trying to remove McCarthy as speaker.

Yet this fight still seemed miles away on Thursday, as various factions both inside the Capitol and far from it sought to exert leverage over McCarthy's next steps.

The 64 members of the bipartisan Problem Solvers Caucus, 32 of them House Republicans, released their own CR plan late Wednesday night. The compromise bill would set border security measures popular with Republicans alongside funding levels that Democrats can get behind.

Pressing McCarthy from the other side was former President Donald Trump, who encouraged his fellow Republicans to demand a bill that strips all funding from federal agencies that are prosecuting Trump on 44 criminal counts.

"This is also the last chance to defund these political prosecutions against me and other Patriots," Trump wrote late Wednesday on Truth Social. Taking aim at McCarthy, Trump continued, "They failed on the debt limit, but they must not fail now. Use the power of the purse and defend the Country!"

— CNBC's Chelsey Cox contributed reporting from Washington.