WASHINGTON, May 25 (Reuters) – U.S. President Joe Biden and top Republican congressman Kevin McCarthy were nearing a deal on the U.S. debt ceiling on Thursday, with just $70 billion between the two sides, a person familiar with the talks said. A deal involving trillions of dollars.
The deal aims to raise the government’s $31.4 trillion debt ceiling in exchange for limits on government spending.
Negotiations are coming down to the wire as the Treasury warned the government could fall short of funding to cover all its spending by June 1, triggering an economically disastrous default without a deal.
Another source said the agreement would specify the total amount the government could spend on discretionary programs such as housing and education, but would not break it down into individual categories. Lawmakers will likely fill in the blanks in the coming weeks and months.
McCarthy said earlier in the day that both sides were making progress.
“We worked well past midnight last night,” McCarthy told reporters. “There are still some outstanding issues and I have directed our teams to work 24/7 to resolve this issue.”
Representative Kevin Hearn, who leads the powerful Republican caucus, told Reuters on Friday afternoon that a deal was likely.
Even if Republicans make progress, McCarthy is preparing to allow lawmakers to leave Washington on Thursday for a week-long vacation on the condition that they be ready to return to a vote. The Senate is now out, but should be ready to return.
Time is short. A US default would lift global financial markets and push the US into recession.
But the Treasury’s forecast is far from iron-clad, and some private-sector analysts believe the government could default for another week, leading some hardliners at McCarthy’s meeting to dismiss the importance of the June 1 deadline.
Credit rating agency DPRS reviewed the US for a possible downgrade on Thursday, echoing similar warnings from Morningstar, Fitch, Moody’s and Scope Ratings. Another firm, S&P Global, downgraded US debt in 2011 following a similar debt ceiling stance.
The months-long standoff spooked Wall Street, weighed on U.S. stocks and pushed up the nation’s borrowing costs. Yields on U.S. Treasury bills maturing in early June rose in early trade Thursday in a sign of investor unease.
U.S. Treasury Undersecretary Wally Adeyemo said concerns about the debt ceiling have so far raised the government’s interest costs by $80 million. “At the end of the day it’s money coming out of the pockets of the American people,” he told an investment industry conference in Washington.
Congress would need days to pass any deal through the Republican-controlled House and Democratic-controlled Senate. Lawmakers often have to raise the self-imposed debt ceiling to cover spending and tax cuts they’ve already approved.
House lawmakers will have three days to read before they have to vote on any debt ceiling bill. In the Senate, Republican Mike Lee said he would block a quick vote if he doesn’t like the deal, which could delay action by several days and push the final passage past June 1.
McCarthy said any deal would have to reduce discretionary spending next year and curb spending growth in the coming years, slowing the growth of the U.S. debt, which now equals the economy’s annual output.
Biden has proposed freezing spending at current levels next year and proposing several tax increases to help control the debt.
Lawmakers on both the right and the left are 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.
Meanwhile, some Democrats worry that Biden is too eager to find common ground with Republicans who threaten the health of the U.S. economy.
“They’re looking to waste time and play games and ensure we default because somehow they think that’s going to be a political advantage,” Democratic Representative Ilhan Omar said at a news conference Wednesday.
Reporting by Nandita Bose, Jared Renshaw, David Morgan, Steve Holland, Andrea Shalal, Richard Cowan, Douglas Gillison and Graeme Slattery; Written by Andy Sullivan; Editing by Scott Malone, Alistair Bell and Rosalba O’Brien
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