Washington – Treasury Secretary Janet Yellen said Friday that the expected deadline for the debt ceiling has been extended to June 5, four days later than previously expected.
However, Yellen renewed her warning in a letter to Congress that failure to raise the borrowing limit would “cause great hardship.”
Yellen’s latest message to lawmakers on Memorial Day “X-date” came as Congress kicked off the long Memorial Day weekend. She said the Treasury Department had published an extraordinary procedure that had not been used since 2015 to bring the financial position of the United States to this point.
The X date arrives when the government no longer has enough of a fiscal cushion to pay all its bills, having exhausted the measures it has been using since January to expand existing funds.
Earlier on Friday, House Speaker Kevin McCarthy said his Republican debt negotiators and the White House had reached a “crisis,” straining to end an agreement with President Joe Biden to limit federal spending and raise the nation’s borrowing limit before a fast-moving deadline. .
They had hoped to end weeks of frustrating talks and reach an agreement by the end of this week. The Treasury now says the government could start running out of money as soon as Monday, sending the US into a potentially catastrophic slump with economic fallout around the world.
Concerned retirees and social service groups were among those making hypothetical contingency plans as lawmakers left town for the long weekend. The next batch of Social Security checks is due to go out next week.
“The world is watching,” IMF Managing Director Kristalina Georgieva said after Friday’s meeting with Yellen. “Let’s remember that we are now twelve o’clock.”
Democrat Biden and the Republican president have been narrowing differences, working out details on a two-year agreement that would restrict federal spending and raise the legal borrowing limit after next year’s presidential election.
Any deal must be a political settlement, with the support of Democrats and Republicans to pass a divided Congress.
“We know it’s a crisis,” McCarthy said upon arriving at the emptied Capitol, acknowledging that more progress needed to be made.
In remarks at the White House honoring the champion Louisiana State University women’s basketball team, Biden gave a shout-out to one of the chief negotiators, saying she had “come to an agreement, hopefully.”
He was referring to Shalanda Young, the director of the Office of Management and Budget who attended the event as did Rep. Garrett Graves of Louisiana, the Republican chief negotiator.
While the contours of the deal are shaping up to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides are still stuck on various provisions. The debt ceiling, now at $31 trillion, will be raised for two years to pay the bills incurred in the country.
A person familiar with the talks said both sides are “crowding” over whether or not to agree to Republican demands for stricter work requirements for people receiving government food stamps, cash assistance and Medicare benefits.
House Democrats have called such requirements for health care and food aid a nonstarter.
Asked if Republicans would back down from the Labor requirements, Graves angrily replied, “Hell no, not a chance.”
House Republicans pushed the issue to the brink, displaying risky political bravado in leaving town for the Memorial Day weekend. Lawmakers are not tentatively expected to return to work until Tuesday, just two days after the June 1 “date X” when Treasury Secretary Yellen said the US could face a default.
Biden will also be away this weekend, leaving on Friday for the presidential retreat at Camp David, Maryland, and on Sunday for his home in Wilmington, Delaware. The Senate is in recess and will be back after Memorial Day.
said negotiator Patrick McHenry, RN.C. , at Midday Friday: “Every time there is progress forward, the issues that remain become more difficult and more challenging.”
Weeks of negotiations between Republicans and the White House have failed to produce an agreement — in part because the Biden administration has resisted negotiating with McCarthy on a debt limit, arguing that the country’s full faith and credit should not be used as leverage to extract other partisan priorities.
“We have to spend less than we did last year. This is the starting point,” McCarthy said.
One idea is to set preliminary budget numbers and then add a “quick” provision to force cuts if, during the annual appropriations process, Congress is unable to meet the new targets.
On the work requirements for aid recipients, the White House is particularly resistant to measures that could push more people into poverty or take away their health care, said the person familiar with the conversations, who was granted anonymity to describe the closed-door discussions.
With regard to the Republican demand that the funds be canceled in favor of the Internal Revenue Service, the source said, it remains an “open issue” as to whether the two sides would concede by allowing the funding to be paid to other local programs.
In one possible development, Republicans may soften their demands to increase defense spending beyond what Biden has proposed in his budget, and instead offer to keep it at suggested levels, according to another person familiar with the talks.
The teams are also looking forward to a proposal to promote power transmission line development from Sen. John Hickenlooper, D-Colo., to make it easier to build an interregional power grid.
Meanwhile, McCarthy feels pressure from the right wing of the House of Representatives not to give in to any deal, even if it means missing the June 1 deadline.
“Let’s get the line,” said Rep. Chip Roy, R-Texas, who is a member of the Freedom Caucus.
McCarthy said Donald Trump, the former president running for office again, told him, “Make sure you get a good deal.”
But vigilant Democrats are pressing Biden. The top three House Democratic leaders, led by Rep. Hakeem Jefferies, spoke late Thursday with the White House.
Even if negotiators reach an agreement in the coming days, McCarthy has promised lawmakers he will abide by the rule to post any bill 72 hours before a vote — now likely on Tuesday or even Wednesday. The Democratic-controlled Senate has vowed to move quickly to send the package to Biden’s desk, ahead of a potential deadline next Thursday.
Meanwhile, Fitch Ratings put the US AAA on “negative ratings watch,” warning of a possible downgrade.
The White House has continued to argue that the deficit can be reduced by ending tax breaks for wealthier households and some businesses, but McCarthy said he told the president early in their meeting in February that increased revenue from tax increases was off the table.
While Biden has, for the time being, ruled out resorting to the Fourteenth Amendment to raise the debt limit on his own, House Democrats announced that they have all signed on to a legislative “discharge” process that would force a vote on the debt ceiling. But they need five Republicans to break away from their party and push a majority to put the plan forward.
They are all certain to recover about $30 billion in unspent COVID-19 money now that the pandemic emergency is officially lifted.