House Speaker Kevin McCarthy said the two parties must strike a debt deal this week to avoid a catastrophic US default that could happen as soon as June 1.
(Bloomberg) — House Speaker Kevin McCarthy said the two parties must strike a debt deal this week to avoid a catastrophic US default that could happen as soon as June 1.
McCarthy said debt-limit discussions Monday morning with White House negotiators were productive ahead of a planned meeting later in the day with President Joe Biden.
“We can get a deal tonight, we can get a deal tomorrow,” McCarthy told reporters at the Capitol Monday afternoon. But even as he expressed optimism, the California Republican stressed that the two sides haven’t yet agreed to anything.
Biden and McCarthy are set to meet at 5:30 p.m. at the White House for face-to-face talks, with Treasury Secretary Janet Yellen warning the US Treasury may not be able to make all payments as soon as June 1.
With time growing short, McCarthy said, “Decisions have to start being made.”
The stock market showed little sign of concern, with the S&P 500 up 0.2% as of 2:05 p.m. Treasuries were down, with two-year yields up about 4 basis points, at 4.31%. The dollar was little changed.
White House negotiators met with Republican representatives Monday morning for about 2 1/2 hours at the US Capitol.
Negotiations have whipsawed between progress and deadlock for days as the two sides simultaneously grapple for political advantage and a deal.
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White House officials and House Republicans disagree on the level and length of caps on discretionary spending, the terms of a faster permitting process for energy projects and whether to include expanded work requirements for beneficiaries of Medicaid, food stamps, and cash-assistance programs.
McCarthy, who leads a fractious caucus and holds a very slim majority, also said he expects that the “majority of House Republicans” will support any final deal.
Biden told reporters Sunday before departing from a summit in Japan that he proposed to cut spending and that the onus is now on Republicans to shift their demands. The president insisted he wouldn’t agree to a deal that protects tax breaks for the wealthy and the fossil-fuel and pharmaceutical industries while cutting health-care and education funding.
“Now it’s time for the other side to move from their extreme positions because much of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden said.
The standoff over the debt ceiling has the potential to put more strain on the US economy, which is already vulnerable to a recession after a series of interest-rate hikes by the Federal Reserve, according to Bloomberg Economics.
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Republicans have lowered their demands on spending caps from 10 years to six years, according to two people familiar with the talks, but the White House still wants the deal to last two years. The two sides are dickering over what counts as a “cut,” with much of the debate around how to count a decrease in one-time disaster aid.
One of the people said the GOP is still seeking a large increase in defense spending next year, something that would deepen cuts to social services. Democrats have demanded that defense, which is about half of all federal discretionary spending, not be fenced off from cuts.
Another key dispute concerns how to determine what the federal government is spending in the current year, which sets the comparison for Republican demands to cut spending. Republicans don’t want to count emergency funding Congress approved in the current year for uses such as disaster aid. That would mean spending in 2024 must be lower to count as a cut from the current year.
0n energy permitting, the two sides are at odds about changing regulations to hasten approvals for electric transmission lines, a key Democratic goal. Republicans are focused on speeding construction of fossil-fuel projects and Democrats on clean-energy projects, including the build-out of high-voltage transmission lines needed to carry the power they produce.
(Updates with additional detail starting in 13th paragraph)
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