US President Joe Biden says a deal to resolve the government’s debt ceiling crisis is “very close”, as the deadline for a potentially catastrophic default was pushed back by four days.
The new “X-date,” laid out in a letter from US Treasury Secretary Janet Yellen, set the risk of a devastating default on June 5, rather than the earlier estimate of June 1.
It came as Americans and the world uneasily watched the negotiating brinkmanship that could throw the US economy into chaos.
Yet Biden was upbeat as he left for the Memorial Day weekend at Camp David, declaring, “It’s very close, and I’m optimistic.”
With Republicans at the Capitol talking with Biden’s team at the White House, the president said: “There’s a negotiation going on. I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.”
In a blunt warning, Yellen said failure to act by the new date would “cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.” Anxious retirees were already making contingency plans for missed cheques, with the next Social Security payments due next week.
Biden and Republican House Speaker Kevin McCarthy seemed to be narrowing on a two-year budget-slashing deal that would also extend the debt limit into 2025 past the next presidential election. After frustrating rounds of closed-door talks, a compromise had appeared to be nearing on Friday.
However, the sides are divided over McCarthy’s demands for tougher work requirements on government food stamp recipients that Democrats say is a nonstarter.
Any deal would need to be a political compromise, with support from both Democrats and Republicans to pass the divided Congress. Failure to lift the borrowing limit, now $31 trillion, to pay the nation’s incurred bills, would send shockwaves through the US and global economy.
But many of the hard-right Trump-aligned Republicans in Congress are pressing McCarthy to hold out.
House Republicans displayed risky political bravado in leaving town for the Memorial weekend holiday. Lawmakers are tentatively not expected back at work until Tuesday, but now their return date is uncertain.
“The world is watching,” International Monetary Fund Managing Director Kristalina Georgieva said after meeting Yellen on Friday. “Let’s remember we are now in the 12th hour.”
Weeks of negotiations between Republicans and the White House have failed to produce a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that the country’s full faith and credit should not be used as leverage to extract other partisan priorities.
On work requirements for aid recipients, the White House is particularly resisting measures that could drive more people into poverty or take their health care.
In one potential development, Republicans may be easing their demand to boost defence spending beyond what Biden had proposed in his budget, according to a person familiar with the talks.
The teams are also eyeing a Democrat proposal to boost energy transmission line development to facilitate the buildout of an interregional power grid.
Meanwhile, Fitch Ratings agency placed the United States’ AAA credit on “ratings watch negative,” warning of a possible downgrade.
The White House has continued to argue that deficits can be reduced by ending tax breaks for wealthier households and some corporations, but McCarthy has said raising revenue from tax hikes was off the table.
While Biden has ruled out, for now, invoking the 14th Amendment to raise the debt limit on his own, Democrats in the House announced they have all signed on to a legislative “discharge” process that would force a debt ceiling vote. But they need five Republicans to break with their party and tip the majority to set the plan forward.
Australian Associated Press