When a project manager identifies constraints and conditions that will prevent the project from being completed as initially planned, it is crucial to create a contingency plan. A contingency plan is a proactive strategy that describes the course of actions or steps the project manager and team will take to respond to potential issues. This plan can help manage risk that might arise from changes or uncertainties in the project. It is part of the broader risk management process in project management, which also includes identifying, assessing, and prioritizing risks. References:
https://www.coursera.org/articles/project-management-lifecycle
https://www.pmi.org/learning/library/delayed-projects-schedule-strategy-10148

The project manager should inform the steering committee that the project is currently behind schedule with a corresponding lower cost, and every effort is being made to expedite the delayed activities. This is because the actual progress is less than the planned progress, indicating that the project is behind schedule. However, the actual cost is also less than the budgeted cost, which means the project is under budget. The project manager should assure the steering committee that efforts are being made to expedite the delayed activities to bring the project back on schedule123.
References:
Steering Committee: Definition, Roles & Meeting Tips - ProjectManager
Steering Committees (Roles, How to Run Meetings) - Tactical Project Manager A Comprehensive Guide to Steering Committee Meetings.

The agile project leader should explain the new team velocity to the customer and negotiate the scope and schedule of the project accordingly. Team velocity is a measure of the amount of work a team can handle during a single iteration1. It is affected by factors such as team size, skills, experience, and availability2.
Since the team has lost two members, the team velocity will likely decrease, which means the team will not be able to deliver the same amount of work as before. The agile project leader should communicate this change to the customer and collaborate with them to prioritize the most valuable features and adjust the release plan3.
Updating the restriction log with the new team capacity (A) is not a sufficient action since it does not address the impact on the project scope and schedule. Explaining the new project requirements to the team (B) is also not a good option since it may overload the team and compromise the quality and value of the product.
Updating the project budget with the released team members is not relevant since the budget has already been reduced by the customer. References:
* 1: Agile Practice Guide, Glossary, page 91
* 2: Agile Practice Guide, Chapter 2, Section 2.4.2.2
* 3: Agile Practice Guide, Chapter 2, Section 2.4.2.3