President Joe Biden and Republican House speaker Kevin McCarthy have moved closer to a two-year deal to limit government spending and avert a US debt default, raising hopes of an end to the fiscal stand-off in the world’s largest economy.
People familiar with the potential agreement said that negotiators were looking to finalise the agreement in the coming days, ahead of a looming deadline of June 1 deadline when the US could run out of cash to pay all of its financial obligations.
Over the course of the day on Thursday, both the White House and Republicans on Capitol Hill suggested the talks were in a better place, though nothing had been concluded. If a deal is reached, it still would face potentially hair-raising votes in a narrowly divided Congress for it to be sent to Biden for his signature, a situation that could extend the uncertainty over the US’s fiscal future well into next week.
“Speaker McCarthy and I have had several productive conversations and our staff continue to meet as we speak as a matter of fact — and they’re making progress,” Biden said on Thursday afternoon, striking an upbeat tone on the talks. “I believe we’ll come to an agreement that allows us to move forward and protects the hardworking Americans of this country.”
His comments came a day after Fitch, the credit rating agency, warned that it could downgrade the US’s triple A rating due to the “brinkmanship” over the debt limit, amid mounting concern that financial stress could escalate in the coming days in the absence of a compromise.
Both Biden and McCarthy have been facing calls from rank-and-file members of their parties to not give up concessions in the final stretch of the negotiations.
McCarthy even spoke by phone on Thursday with former president Donald Trump, who has called for Republicans to accept a default if Biden did not agree to deep spending cuts. He then gathered with top Republican lawmakers in his office. “We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy,” McCarthy told reporters. “It takes a while to make it happen, and we are working hard to make it happen.”
According to people familiar with the talks, the pact would settle the trajectory of US fiscal policy until 2025, after next year’s general election, when a new Congress and administration will be in office. Biden is running for a second term on the Democratic side, while Trump and Ron DeSantis, the Florida governor, are the top contenders to win the Republican nomination.
As well as raising the debt ceiling and limiting spending until then, on the table in the final stretch of the talks are also measures to speed up permitting of big infrastructure projects, and add new work requirements to social safety net programmes.
The sides have also been debating whether to trim funding for the Internal Revenue Service, the US tax collection agency, that had been approved just last year so it could better tackle tax avoidance and evasion among wealthy households, the people familiar with the matter said.
House members are heading home for the Memorial day long weekend but have been told they may need to return to Washington at short notice. “The sand is nearly out of the hourglass for a potential debt ceiling deal,” Chris Krueger, an analyst at TD Cowen’s Washington Research Group, wrote in a note on Thursday.
Business groups in Washington have been urging both sides to strike a compromise as rapidly as possible to avoid a potentially devastating economic and financial blow.
“It starts to get really hairy if there’s no deal in the next 24 hours,” said Neil Bradley, the chief policy officer at the US Chamber of Commerce. “We’re in that window where you need things to go well.”
Speaking at an event organised by the Investment Company Institute earlier in the day, Wally Adeyemo, the deputy Treasury secretary, lamented that the stand-off had gone down to the wire.
“I think everyone’s goal is to make sure that we raise the debt limit. But the most important thing, as all of you in this room know [and] that the American people know, is that we shouldn’t be here,” he said. “This is a manufactured crisis.”