UPDATED 1:37 P.M.
WASHINGTON (Reuters) – U.S. President Joe Biden and top congressional Republican Kevin McCarthy on Thursday appeared to be nearing a deal to cut spending and raise the government’s $31.4 trillion debt ceiling, with little time to spare to head off the risk of default.
The deal would specify the total amount the government could spend on discretionary programs like housing and education, according to a person familiar with the talks, but not break that down into individual categories. The two sides are just $70 billion apart on a total figure that would be well over $1 trillion, according to another source.
Biden said the two sides still disagreed where the cuts should fall.
“I don’t believe the whole burden should fall back to middle class and working class Americans,” he told reporters.
The Treasury Department has warned that the federal government could run short of money to cover all its obligations as soon as June 1 – a week away – but on Thursday it announced plans to sell $119 billion worth of debt that will settle on June 1, suggesting to some market watchers that date was not an iron-clad deadline.
Any agreement will have to pass the Republican-controlled House of Representatives and the Democratic-controlled Senate. That could be tricky, as some right-wing Republicans and many liberal Democrats said they were upset by the prospect of compromise.
“I don’t think everybody’s going to be happy at the end of the day. That’s now how the system works,” said McCarthy, who serves as House speaker.
His office did not respond to a request for comment about the possible agreement with the Democratic president.
The deal would only set broad spending outlines, leaving lawmakers to fill in the blanks in the weeks and months to come.
It would specify the total amount of military spending, which would a key sticking point in the talks, one of the sources said.
Biden has resisted Republican proposals to stiffen work requirements for anti-poverty programs and loosen oil and gas drilling rules, according to Democratic Representative Mark Takano.
Representative Kevin Hern, who leads the powerful Republican Study Committee, told Reuters a deal was likely by Friday afternoon.
Even as Republicans tout progress, McCarthy is preparing to possibly let lawmakers leave Washington on Thursday for a week-long holiday recess, with the proviso that they need to be ready to return for a vote. The Senate is currently out but on similar orders to be ready to return.
A U.S. default could upend global financial markets and push the United States into recession.
POSSIBLE DOWNGRADE
Credit rating agency DBRS Morningstar put the United States on review for a possible downgrade on Thursday, echoing similar warnings by Fitch, Moody’s and Scope Ratings. Another agency, S&P Global, downgraded U.S. debt following a similar debt-ceiling standoff in 2011.
The months-long standoff has spooked Wall Street, weighing on U.S. stocks and pushing the nation’s cost of borrowing higher. The yield on U.S. Treasury bills maturing in early June climbed in early Thursday trading, in a sign of investor unease.
Deputy U.S. Treasury Secretary Wally Adeyemo said concerns about the debt ceiling had pushed up the government’s interest costs by $80 million so far.
Lawmakers regularly need to raise the self-imposed debt limit to cover the cost of spending and tax cuts they have already approved.
House lawmakers will get three days to read any debt-ceiling bill before they have to vote on it. In the Senate, Republican Mike Lee said he would block a quick vote if he did not like the deal, which could delay action for days.
McCarthy has insisted that any deal must cut discretionary spending next year and cap spending growth in the years to come, to slow the growth of the U.S. debt, now equal to the annual output of the economy.
He also said he had briefly spoken about the negotiations with former President Donald Trump, who has publicly urged Republicans to allow a default if they fall short of their goals.
Biden has offered to freeze spending at current levels next year and proposed several tax increases to help curb the debt.
Lawmakers on the parties’ right and left flanks are growing frustrated by signs of compromise. Republican Representative Chip Roy, a member of the hard-right Freedom Caucus, has insisted that any deal must include the sharp spending cuts they passed last month.
Some Democrats, meanwhile, say Biden has not been vocal enough about the downsides to Republicans’ proposed spending cuts, in contrast to McCarthy who has been briefing reporters multiple times per day.
“I would urge the president to use the power of the bully pulpit of the presidency,” said Democratic Representative Steven Horsford.
(Reporting by Nandita Bose, Jarrett Renshaw, David Morgan, Richard Cowan, Moira Warburton, Trevor Hunnicutt, Douglas Gillison and Gram Slattery; writing by Andy Sullivan; Editing by Scott Malone, Alistair Bell and Rosalba O’Brien)
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WASHINGTON (Reuters) -White House and Republican negotiators made some progress in late-night talks over raising the government’s $31.4 trillion debt ceiling, top congressional Republican Kevin McCarthy told reporters on Thursday.
Talks are going down to the wire as the Treasury Department has warned the government could run short of funds to cover all its expenses as soon as June 1, which without a deal could trigger a potential economically catastrophic default.
Democratic President Joe Biden and House of Representatives Speaker McCarthy are at odds over spending, taxes and work requirements for anti-poverty programs. But both sides say they believe they can find common ground after hours-long discussions by their negotiating teams on Wednesday that they characterized as productive.
“We worked well past midnight last night,” McCarthy told reporters. “I thought we made some progress. There’s still some outstanding issues and I’ve directed our team’s work 24/7 to try to solve this problem.”
Even as he made that pronouncement, McCarthy is preparing to possibly let lawmakers leave Washington on Thursday for a week-long holiday recess, with the proviso that they need to be ready to return for a vote.
Time is running short. The Treasury Department says the United States could run out of money to pay its bills as soon as June 1, seven days from now, if the debt ceiling is not raised. A U.S. default could upend global financial markets and push the United States into recession.
But Treasury’s forecast is not iron-clad and some private sector analysts reckon the government could go another week without defaulting, which has led some hardliners in McCarthy’s caucus to dismiss the significance of the June 1 deadline.
Asked if Treasury could meet its debt obligations after June 1 without a debt ceiling hike, McCarthy said: “There’s always money coming in. But I leave that up to the Treasury secretary. I take June 1 as the deadline, always have.”
Ratings agency Fitch said on Wednesday it had put the United States’ “AAA” credit rating on negative watch, citing increasing political disputes around the country’s debt limit. Fitch last put the United States on negative watch in October 2013.
“The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges … and a growing debt burden signal downside risks to U.S. creditworthiness,” Fitch said in its statement on Wednesday.
The months-long standoff has spooked Wall Street, weighing on U.S. stocks and pushing the nation’s cost of borrowing higher. The yield on U.S. Treasury bills maturing in early June climbed in early Thursday trading, in a sign of investor unease.
THREE DAYS
Congress will need several days to pass any agreement through the Republican-controlled House and the Democratic-controlled Senate. Lawmakers regularly need to raise the self-imposed debt limit to cover the cost of spending and tax cuts they have already approved.
Representative Steve Scalise, the No. 2 House Republican, said lawmakers in that chamber will get three days to read any debt-ceiling bill before they have to vote on it. In the Senate, any one member can delay action for days.
The House was due to leave Washington on Thursday for a week-long Memorial Day holiday recess, though Scalise warned lawmakers to be ready to be called back to Washington for a vote if necessary.
McCarthy has insisted that any deal must cut discretionary spending next year and cap spending growth in the years to come, to slow the growth of the U.S. debt, now equal to the annual output of the economy.
Biden has offered to freeze spending at current levels next year and proposed several tax increases to help curb the debt.
Credit rating agency Moody’s said it might reassess its top notch rating for the U.S. government if lawmakers fail to reach a deal. A prior debt-ceiling standoff in 2011 prompted rival ratings agency S&P Global to lower its rating.
Lawmakers from both parties are reluctant to compromise. Hardline House Republicans insist that Biden must agree to the sharp spending cuts they passed last month. Some Democrats accuse Republicans of holding the economy hostage to advance an agenda that would otherwise fall short.
“They are looking to waste time, play games and make sure we default because they think that somehow that is going to be a political advantage,” Democratic Representative Ilhan Omar said at a news conference on Wednesday.
Biden spent months saying he would not negotiate on raising the debt limit only to reverse course and begin talks with McCarthy in the last few weeks.
The last time the federal government came this close to default was in 2011, with a similar power divide in Washington – a Democratic president and Senate majority and a Republican-controlled House.
(Reporting by David Morgan, Steve Holland, Andrea Shalal, Richard Cowan, and Gram Slattery; writing by Andy Sullivan; Editing by Scott Malone, Leslie Adler and Chizu Nomiyama)
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