No deal yet: There is still a “significant gap” between House Republicans and the White House on how to resolve the looming debt ceiling deadline, the GOP negotiators said Tuesday.
Looming deadline: Treasury Secretary Janet Yellen warned Monday that Congress has only a little time left to pass legislation to avoid a first-ever US default. Several other analyses back up Yellen’s forecast that the so-called X-date – when the nation would default – could arrive in early June, though they don’t necessarily think it’s as early as June 1.
Our live coverage for the day has ended. Follow the latest US politics news here – or read through the updates below for the latest on the debt talks.
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Republican negotiators say "significant gap" remains on debt ceiling talks
From CNN's Kristin Wilson, Haley Talbot, Nicky Robertson and Morgan Rimmer
After another day of negotiations on Capitol Hill, there is still a “significant gap” between House Republicans and the White House on how to resolve the looming debt ceiling deadline, according to the GOP negotiators.
Reps. Garret Graves and Patrick McHenry said that until the president and the White House “recognize that this is a spending problem” those gaps could remain. The Treasury Department has said the country could default as soon as June 1.
Graves said there are no planned meetings tonight with the White House, but the door is open for more talks should the administration want to return to the Capitol. He said Republican negotiators are meeting in Speaker Kevin McCarthy’s office to try to come up with other options to cut spending.
McCarthy has said over the week that he needs an agreement to come together by the end of the week in order to meet the “X date” deadline, a date that some in his conference has said is not a hard-and-fast date.
McHenry, however, said he trusts Treasury Secretary Janet Yellen’s assessment, saying, “She said June 1, and she is in charge of cash management. There’s a whole bureaucracy within the Treasury. They don’t play games. They don’t play games.”
This underscores that the clock is ticking for both sides, with McHenry saying it will take 24 to 48 hours to actually write the legislation. He also said they will keep the rule in the House that allows members three days to review the bill before voting on it.
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Top House Democrat criticizes Republicans' demands for spending cuts in debt limit deal
From CNN's Morgan Rimmer
Jeffries speaks with reporters on Tuesday, May 23.
CNN
House Minority Leader Hakeem Jeffries blasted House Republicans for demanding significant spending cuts be included in any debt limit deal and accused them of not being willing to compromise.
“America is at risk of a dangerous default for one reason: extreme MAGA Republicans in the House of Representatives refuse to be reasonable in trying to find common ground with President Biden, House and Senate Democrats,” he said. “You cannot achieve a bipartisan resolution if House Republicans have taken the position that it’s my way or the highway.”
He noted that any deal will also need to get bipartisan support in the House, as some conservatives are threatening to vote against anything less than the debt limit bill they passed last month.
Because of this, Jeffries argued that Democrats will need to be part of the resolution, but that House Republicans “have taken the position that the only thing they’re willing to yield on is avoiding a default,” adding that they are acting “differently, irresponsibly, and unreasonably.”
Pressed whether freezing spending at 2023 fiscal year levels is the absolute limit for the White House and Democrats, Jeffries replied that it is a reasonable compromise.
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Swing-district Republicans reject Democratic effort to force vote on debt ceiling hike
From CNN's Manu Raju and Morgan Rimmer
Several moderate Republicans and GOP members from swing districts poured cold water on the long-shot Democratic effort to force a vote on a debt ceiling hike and circumvent Republican leadership.
Democrats have initiated a so-called discharge petition, where they need 218 signatures to force a vote on legislation. But with 213 members — and only 210 Democrats signing on so far — they need Republican support, which they are struggling to get.
Rep. Mike Lawler speaks with CNN's Manu Raju.
CNN
Rep. Mike Lawler, a freshman New York Republican, rejected the idea outright.
Other moderate Republicans echoed Lawler’s call for negotiation and compromise.
Rep. David Joyce discusses the debt ceiling negotiations on Tuesday.
CNN
“I’m not interested in that,” Rep. David Joyce of Ohio told CNN. “Why would we do that right now when we got Speaker McCarthy and President Biden sitting down in hopefully serious negotiations to get to top-line spending? I think it’s premature to discuss anything like that.”
Rep. Nancy Mace talks with CNN's Manu Raju.
CNN
Rep. Nancy Mace, a South Carolina Republican from a swing district, also did not indicate she would sign on.
“I’m not gonna vote on a clean debt ceiling without some sort of responsible, reasonable mechanism to say, ‘Hey, timeout on spending,’” she said.
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Here's what you should know about the nation's debt ceiling drama
From CNN staff
McCarthy speaks to reporters at the US Capitol in Washington, DC on Tuesday, May 23
Andrew Caballero-Reynolds/AFP/Getty Images
White House and House Republican negotiators met Tuesday as the clock ticks on the nation’s debt ceiling drama.
Talks are not going well, according to key GOP negotiators Patrick McHenry and Garret Graves. And House Speaker Kevin McCarthy said Tuesday that he’s not close to a bipartisan deal with President Joe Biden to avoid a first-ever default on the nation’s debt. He left the Capitol on Tuesday and told reporters that he does not expect a debt ceiling deal to come through today.
Exactly when the federal government will no longer be able to pay its bills in full and on time is not known, but it could come as soon as early June.
Here’s what you should know:
Talks on the table: McHenry refused to say whether the White House and Republicans have discussed a short-term bill to raise or suspend the debt limit in the event a deal cannot be reached by the deadline for a potential government default. He argued, however, that there are “technical challenges” to doing that. McHenry and Graves said the White House needs to realize they have to agree to cut spending or no deal can be reached.
Graves told reporters that as the negotiators deal with spending, they also have to be dealing with the reality of the other issues that have become part of these talks, including clawing back unspent Covid funds, new work requirements and other issues.
McCarthy said he thinks Biden is trying to “disrupt” debt ceiling negotiations by bringing proposals involving Medicare and Social Security back on the table. McCarthy also said he wanted longer spending, saying that “the country would be in better shape” if they were extended out. The White House has said cuts to Social Security and Medicare are off the table in debt ceiling negotiations. But they have long telegraphed an interest in expanding Medicare drug price negotiation, which would raise additional revenue by allowing the government to negotiate the prices of more prescription drugs.
Democrats and Republicans remain divided: House members on both sides of the aisle remain divided over the approach to debt ceiling discussions. House Democratic Leader Hakeem Jeffries on Monday evening asserted that talks are moving in the “wrong direction.” Jeffries’ position is critical because McCarthy will almost certainly need House Democratic support to pass any deal cut with the White House. Still, a number of Republicans – even some who haven’t always backed McCarthy – said they are standing by the speaker and are happy with how he’s negotiated up until this point.
Implications of a default. If Congress fails to address the debt ceiling, the federal government could run out of money as soon as June 1, according to Treasury Secretary Janet Yellen. The nonpartisan Congressional Budget Office said Friday there is a “significant risk” the federal government will no longer be able to pay all of its obligations during the first two weeks of June. Experts warn of dire consequences for American families in the case of an unprecedented default on US debt including the possibilities of mass layoffs, market mayhem and spiked borrowing costs. If the US defaults on its debt, it would also raise questions about the safety and viability of US Treasuries. However, an analysis released by the Atlantic Council on Tuesday says investors may actually buy more US Treasuries.
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Analysis: Why the debt ceiling is an awkward place to talk about spending
From CNN's Zachary B. Wolf
The debt ceiling snafu, which has the potential to wreck the US economy, is a civics lesson in the bizarrely inefficient way the American government spends your money.
Here’s the broadest outline of how members of Congress oversee trillions in tax dollars each year and the borrowing of money to make up for the annual shortfall:
They budget. Lawmakers debate and set priorities through a detailed budget process that was created in the 1970s. The White House initiates a budget proposal each year, and a set of budget committees take a look.
They authorize. A different set of committees votes to give the government authority to set up and run government programs.
They appropriate. A third set of committees actually OKs the spending of money, effectively telling the Treasury Department to cut checks.
They reconcile. Congress OKs the spending of more money than it brings in every year, so the budget process gives lawmakers an opportunity to bypass normal rules to address deficits. (Although in recent years, Republican lawmakers have used this special reconciliation process to pass massive permanent tax cuts for corporations, and Democrats have used it to fund new spending.)
Where does the debt ceiling come in? The debt ceiling, the subject of the current drama consuming the nation’s capital, is something else entirely.
While legally separate from the budget process, it represents yet another check that has evolved into the system since a version of the debt ceiling was first adopted in the run-up to World War I.
The Treasury Department has been given gradually more leeway by Congress over how to finance deficit spending, be it for wars, emergencies or the creation of the social safety net.
While the size of that debt has exploded, the government guarantee behind it represents the solid backbone of the US financial system.
“America’s ability to borrow — and its sterling reputation for paying it back — is its superpower. And if it doesn’t do that — for the first time, ever — that reputation could vanish,” writes CNN’s chief business correspondent Christine Romans in an excellent piece of analysis.
Using the threat of default on debt for previous spending is an inefficient way to control future spending, she argues.
House Foreign Affairs Committee chair says he believes debt ceiling talks are going "relatively well"
From CNN's Michael Conte and Jennifer Hansler
Rep. Michael McCaul arrives for a House Rules Committee on May 9, in Washington, DC.
Drew Angerer/Getty Images
Republican Rep. Michael McCaul, chair of the House Foreign Affairs Committee, said the US doesn’t “default on our full faith and credit” and that talks for a debt limit deal are going well.
Meeks said he is concerned about whether other members of the GOP would vote for any deal agreed to by President Joe Biden and House Speaker Kevin McCarthy.
“I should hope that we don’t see some of the things that we saw on the floor when Mr. McCarthy became the speaker and that they’re able to organize and let’s work out an agreement,” Meeks said.
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Federal Reserve chair tells House Democrats he has ideas on how to reform the debt ceiling, source says
From CNN’s Matt Egan
Federal Reserve Chair Jerome Powell told a coalition of House Democrats on Tuesday that he has a lot of ideas about how to reform the debt ceiling, a person familiar with the matter tells CNN.
Powell spoke before nearly 100 lawmakers at the New Democrat Coalition’s member lunch – a meeting that took place as leaders in Washington struggle to reach a deal to raise the debt ceiling before the government runs out of cash.
During that event, Powell declined to address specifics about debt ceiling negotiations given that these talks are ongoing, the person familiar with the matter said.
However, Powell did say he has ideas about how the controversial debt ceiling can be revamped and would be happy to share them once the current impasse is over, the source said.
A spokesperson for the Federal Reserve declined to comment.
More background: The New Democrat Coalition describes itself as a center-left group of nearly 100 House Democrats committed to “pro-economic growth, pro-innovation and fiscally responsible policies.”
Neel Kashkari, president of the Minneapolis Federal Reserve Bank, told CNN’s Poppy Harlow on Tuesday that it would be “prudent once we get through this scenario to figure out why we do this to ourselves” with the debt ceiling and whether a “more rational approach” can be taken in the future.
“I do think it’s odd,” Kashkari said of the debt ceiling, noting that most major economies don’t have such a borrowing limit. “It’s up for Congress to decide what to do there.”
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US markets close lower as traders worry about debt ceiling
From CNN’s Nicole Goodkind
US stocks closed lower on Tuesday as debt ceiling fears triggered a selloff on Wall Street. Investors are on edge as they fret over the lack of progress towards a deal.
The Dow closed down 212 points, or 0.6% on Tuesday. The S&P 500 was 1.1% lower. The Nasdaq Composite fell 1.2%.
Negotiations between President Joe Biden and Republican House Speaker Kevin McCarthy have so far failed to produce any agreement as the June 1 “hard deadline” for the United States to raise the debt ceiling or risk defaulting on its obligations is just now just nine days away.
Treasury yields, meanwhile, moved higher across the board as worries of a default grew. Yields on the two-year and 10-year notes recently reached their highest levels since March.
As stocks settle after the trading day, levels might change slightly.
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McCarthy has left the US Capitol and says he does not expect a debt ceiling deal today
From CNN's Kristin Wilson
House Speaker Kevin McCarthy left the Capitol Tuesday and told reporters that he does not expect a debt ceiling deal to come through.
“I don’t think we’ll get one today,” he said.
Earlier, GOP Rep. Patrick McHenry, one of the chief Republican negotiators on the debt limit, told CNN that there are no plans for more meetings with the White House negotiators Tuesday.
“There’s nothing scheduled at this point,” he said.
However, he noted that is just the plan “right now,” and said he’s been out of the office for about an hour and a half — so this could change.
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CNN Poll: 60% of Americans say Congress should only raise debt ceiling if spending cuts are made at same time
The poll comes as the June 1 “hard deadline” is fast approaching and lawmakers continue to negotiate to avoid economic catastrophe.
Few see President Joe Biden or the Republicans in Congress as acting responsibly in negotiations over the debt limit, with most in both parties more concerned that their side will give up too much than that the United States will default on its debt.
Still, a broad majority of Americans favor raising the debt ceiling — 84%, with just 15% saying Congress should not do so under any circumstances.
Besides the 60% who support raising the ceiling alongside spending cuts, 24% say it should happen no matter what.
These findings come amid widespread doubts about the nation’s political leaders more broadly.
Few Americans say that Biden (31%) or the Republican leaders in the House of Representatives (29%) have the right priorities. Among independents, 60% say that neither Biden nor GOP leaders are paying enough attention to the country’s most pressing problems.
Though 71% of all Americans say that not raising the debt limit would cause a crisis or major problems for the country — and many foresee a major negative impact on the stock market (60%), the nation’s credit rating (59%) and the overall economy (58%) — relatively few see a deeply negative impact on their own finances as a likely outcome (35%).
Less than half say that failure to raise the debt ceiling would cause a major negative impact on the unemployment rate (43%).
About half of Americans say they have been following the negotiations over the debt limit very (14%) or somewhat closely (36%) — below the 70% who said they were following very or somewhat closely in 2011, when President Barack Obama and Republicans in Congress were negotiating a debt ceiling increase.
Majority support for raising the debt ceiling in some fashion cuts across party lines, but most Republicans (79%) and independents (58%) say the limit should only be raised if spending cuts are enacted at the same time, while Democrats are split between supporting a debt ceiling increase no matter what (46%) and raising it only alongside spending cuts (45%).
More about the poll: The CNN Poll was conducted by SSRS from May 17-20 among a random national sample of 1,227 adults drawn from a probability-based panel. Surveys were either conducted online or by telephone with a live interviewer. Results among the full sample have a margin of sampling error of plus or minus 3.7 points; it is larger for subgroups.
CNN’s Ariel Edwards-Levy contributed reporting to this post.
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White House pushes back against GOP negotiator claim that administration lacks urgency on debt limit talks
From CNN's DJ Judd
White House press secretary Karine Jean-Pierre speaks during a briefing at the White House in Washington DC, on May 9.
Evan Vucci/AP
White House press secretary Karine Jean-Pierre said it was “ridiculous” to claim that the Biden administration has lacked urgency in addressing the debt limit — pushing back against comments from one of the lead House GOP negotiators.
During a news conference on Capitol Hill — after Monday’s Oval Office meeting with President Joe Biden — Republican Rep. Patrick McHenry, a chief negotiator in debt limit talks, called the negotiations “challenging.”
He said while “it was productive to have everyone on the same page of the challenges that we have to coming to terms with the deal, what I sense from the White House from is a lack of urgency.”
Jean-Pierre reiterated that the Oval Office meeting was “productive,” later adding that negotiators for the White House “met for hours, and so they’re going to be returning and clearly give the president an update.”
The press secretary declined to say whether Biden planned to speak with House Speaker Kevin McCarthy later today.
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McCarthy suggests GOP is unwilling to make any more concessions in debt ceiling talks
From CNN's Nicky Robertson
House Speaker Kevin McCarthy indicated Tuesday that Republicans are unwilling to make any more concessions in the high-stakes debt ceiling negotiations with the White House.
Pressed on whether that is his only concession, McCarthy said: “Everything we’re going to do is going to make America stronger.”
On a potential freeze on current levels of spending, a compromise that some Democrats have been pushing for, the speaker questioned why Democrats are offering that now.
He noted the House had passed a bill that raises the debt ceiling.
And he added: “The Senate hasn’t done anything. And so we’re sitting communicating, working together, and they’re just now coming up with the idea of freeze. They didn’t want to negotiate for 100 days.”
Some background: In April, House Republicans passed a bill to raise the debt ceiling paired with nonspecific requirements for spending cuts, to undo climate change-related spending championed by Democrats and to impose new federal work requirements for Medicaid recipients, among other things.
The one-sided bill was a nonstarter for Democrats, who ignored it in the Senate.
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Short-term debt limit has '"technical challenges," GOP negotiator says
From CNN's Alayna Treene
Rep. Patrick McHenry speaks with reporters on Capitol Hill in Washington DC, on May 23.
Francis Chung/Politico/AP
Key GOP negotiator Patrick McHenry refused to say whether the White House and Republicans have discussed a short-term bill to raise or suspend the debt limit in the event a deal cannot be reached by the deadline for a potential government default. He argued, however, that there are “technical challenges” to doing that.
The North Carolina Republican, who serves as chair of the House Financial Services committee, also would not say whether such a move is off the table, but told reporters, “The treasuries market is quite different, and our technical ability to do a short bridge is quite limited.”
McHenry said the main sticking point in debt limit negotiations continues to center on spending cuts, calling it “a fundamental disagreement between the two parties.”
He also argued that House Speaker Kevin McCarthy and President Joe Biden have built a “productive” relationship over the course of negotiations, and he thinks the talks should be left to the two of them to hash out.
McHenry told reporters the key disagreements they’re still working out, apart from spending cuts, are on work requirements, taxes and pharma.
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US default might result in more Treasury purchases, new report says
From CNN's Bryan Mena
If the United States defaults on its debt, that would raise questions about the safety and viability of US Treasuries. However, an analysis released by the Atlantic Council on Tuesday says investors may actually buy more US Treasuries.
That’s because there isn’t any viable alternative.
The Atlantic Council’s analysis argues that other government securities markets aren’t large enough to provide a safe haven for investors.
The amount of outstanding US Treasuries exceeded $25 trillion in the third quarter last year, a government securities market about as large as those of the rest of the G7 countries and China combined.
In the event of a US default, Treasury Secretary Janet Yellen might be able to calm investors of Treasuries “by promising to continue to pay interest on debt even as other bills go unpaid,” Lipsky wrote.
But that would not be a solution at all, he added.
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Debt ceiling negotiators will continue to meet throughout Tuesday, Graves says
From CNN's Morgan Rimmer and Lauren Fox
Rep. Garret Graves, center, speaks to reporters about debit ceiling negotiations in Washington DC, on May 23.
Bill Clark/CQ-Roll Call, Inc via Getty Images)
Republican Rep. Garret Graves, who has served as a chief negotiator during debt ceiling talks, said meetings will continue with the White House team throughout the day.
He added that no scheduled meetings have been set between President Joe Biden and House Speaker Kevin McCarthy.
But, he says, large differences remain, even as the timeline grows shorter.
“Look, there are some big bright red lines on both sides. We do not have any of those issues closed out. And you’ve seen some folks that have indicated that some of these issues cannot be included. I’ll tell you that that’s not what I’m operating under and that everything’s on the table, and we’re gonna keep negotiating until there’s a deal that makes sense and meets the speaker’s parameters,” he said.
Asked if there is general agreement on cuts, he said: “No, that’s our biggest gap.”
Graves said that the biggest gap is about numbers. “My interpretation of their position is that they fail to recognize, or fail to accede to the fact that we are on a spending trajectory right now that is absolutely unsustainable.”
While Republicans have said they want to keep as much of their debt ceiling bill intact as possible and hold on to as many Republican members as possible, he said they still have to take the Democratic-majority Senate and Democratic president into account.
“Look, my objective is to get as many votes as we can, period. I think that’s really important,” the key GOP negotiator said.
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White House negotiators have left the Capitol
From CNN's Morgan Rimmer
Office of Management and Budget Director Shalanda Young speak at the White House in Washington DC, on May 4.
Demetrius Freeman/The Washington Post/Getty Images
White House negotiators have left the Capitol building, after meeting for a little over two hours with House Republican negotiators.
Asked if they’d be back later tonight, Director of the Office of Management and Budget (OMB) Shalanda Young replied, “that’s a good one.”
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McCarthy: "We're not there yet," but debt ceiling deal is "always possible, I am optimistic"
From CNN's Nicky Robertson, Haley Talbot and Morgan Rimmer
House Speaker Kevin McCarthy speaks with other Republican members of the House and Senate at a news conference on debt limit negotiations at the Capitol in Washington, DC, on May 17.
Haiyun Jiang/The New York Times/Redux
House Speaker Kevin McCarthy appeared optimistic about the possibility of a deal on the debt ceiling with President Joe Biden.
Asked if he thought that a deal — in principle — could be reached today, McCarthy responded, “Always possible, I am optimistic.”
He added, “I believe in life you don’t give up … we are working together now, we are finally meeting.”
McCarthy has not spoken to Biden since their meeting Monday but said that the negotiating teams are getting together. He said that he is not scheduled to go to the White House today.
The speaker also said he would talk to Biden on the phone if they do not meet in person.
McCarthy reiterated his opposition to a spending freeze, a compromise that some Democrats are pushing for.
“We are not putting anything on the floor that doesn’t spend less than we spent this year,” McCarthy said.
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McCarthy: Biden wants to disrupt negotiations over Medicare and Social Security
From CNN's Hill Team
House Speaker Kevin McCarthy now says he thinks President Joe Biden is trying to “disrupt” debt ceiling negotiations by bringing proposals involving Medicare and Social Security back on the table.
“The president said ‘You can’t do anything with Medicare and Social Security,’ and now he wants to bring that into the fold,” McCarthy said of a proposal that would help the government save money by expanding the number of drugs that Medicare can negotiate prices for, building on a provision in the Individual Retirement Accounts (IRA).
McCarthy also said he wanted longer spending, saying that “the country would be in better shape” if they were extended out.
“They’re working right now in the conference room there. We’re trying to make progress,” he said. “We’re hopeful that there’s progress.”
The White House has said cuts to Social Security and Medicare are off the table in debt ceiling negotiations. But they have long telegraphed an interest in expanding Medicare drug price negotiation, which would raise additional revenue by allowing the government to negotiate the prices of more prescription drugs.
More background: The Inflation Reduction Act, which congressional Democrats passed and Biden signed into law last summer, makes several changes to Medicare that are aimed at saving senior citizens and the federal government money. The most notable is allowing Medicare to use its heft to negotiate drug prices, a longstanding Democratic goal that had previously not been allowed.
The law empowers Medicare to negotiate the prices of certain costly medications administered in doctors’ offices or purchased at the pharmacy. The Health and Human Services secretary will negotiate the prices of 10 drugs in 2026, and another 15 drugs in 2027 and again in 2028. The number rises to 20 drugs a year for 2029 and beyond. Only medications that have been on the market for several years without competition are eligible.
The White House and many Democrats, however, have been eager to expand the number of drugs subject to negotiation and bring them into negotiation sooner after they launch. This would also save the government more money, allowing lawmakers to plow the funds into other programs.
One way Biden would use the savings is to shore up a key Medicare trust fund. The proposal, unveiled just ahead of his budget plan earlier this year, calls for allowing Medicare to negotiate even more prescription drugs and raising taxes on those earning more than $400,000 annually. This would extend the solvency of Medicare’s hospital insurance trust fund, known as Part A, by 25 years or more, according to the White House.
Medicare’s trust fund will only be able to pay scheduled benefits in full until 2031, according to its trustees’ most recent annual report. At that time, Medicare, which covered 65 million senior citizens and people with disabilities in 2022, will only be able to cover89% of total scheduledbenefits.
It’s unclear what Biden is proposing for Social Security, which provides benefits to roughly 66 million people. Though Biden has promised to defend the entitlement from any cuts proposed by Republicans, his budget made no mention of it.
CNN’s Tami Luhby and Jeremy Diamond contributed to this report.
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Key things to know about the debt ceiling as the threat of default looms
From CNN's Tami Luhby and Kaanita Iyer
Alberto Mier/CNN
The clock is ticking faster on the nation’s debt ceiling drama. Exactly when the federal government will no longer be able to pay its bills in full and on time is not known, but it could come as soon as early June.
That doesn’t give House Republicans and the White House a lot of time to work out a deal to avoid a default. Negotiators are trying to hammer out an agreement, but multiple sticking points remain.
House Speaker Kevin McCarthy pushed his package to raise the debt ceiling by $1.5 trillion through the House in a close vote in late April. But the White House is balking at some of the provisions, including deep spending cuts and additional work requirements for those receiving public assistance.
What is the debt ceiling? Established by Congress, the debt ceiling is the maximum amount the federal government is able to borrow to finance obligations that lawmakers and presidents have already approved – since the government runs budget deficits and the revenue it collects is not sufficient. Increasing the cap does not authorize new spending commitments.
The debt ceiling, which currently stands at $31.4 trillion, was created more than a century ago and has been modified more than 100 times since World War II.
Though it was originally designed to make it easier for the federal government to borrow, the limit has become a way for Congress to restrict the growth of borrowing – turning it into a political football in recent decades.
Still, fears of a default have prompted lawmakers to pass legislation to raise or suspend the ceiling every time, most recently in December 2021. So the US has never actually defaulted on its debt.
What happens if the US does default on its debt? Once the extraordinary measures and cash on hand are exhausted, the debt ceiling crisis would start having very real impacts.
Treasury would likely have to temporarily delay payments or default on some of its commitments, potentially affecting interest and principal payments on US debt, Social Security payments, veterans’ benefits and federal employees’ salaries, among other obligations. But it might prioritize paying interest and principal first in an attempt to minimize the fallout.
No one knows exactly how Treasury would handle the situation since it has never happened. A default would also wreak havoc on the US economy and the global financial markets, as well as shake confidence in the safety of the Treasury market and raise borrowing costs. Even the threat of one in 2011 caused the only credit rating downgrade in the nation’s history.
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How a debt default could affect you
From CNN's Tami Luhby and Elisabeth Buchwald
A poster at a bus shelter shows the national debt in Washington, DC, on May 21.
Mandel Ngan/AFP/Getty Images
President Joe Biden and House Republicans have a short amount of time to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.
Treasury Secretary Janet Yellen has warned the government may not be able to pay all of its bills in full and on time as soon as June 1.
Social Security payments: Payments to about 66 million retirees, disabled workers and others receive monthly Social Security benefits could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.
Other government payments could also be affected, including funding for food stamps; federal grants to states and municipalities for Medicaid, highways, education and other programs.
Federal employees and veterans benefits: More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.
Also, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected.
The economy: A debt default could trigger an economic downturn, which would prompt a spike in unemployment. It would come at a particularly fragile time — when the nation is already dealing with rising interest rates and stubbornly high inflation.
How much damage would be done would depend on how long the crisis continues. If the default lasts for about a week, then close to 1 million jobs would be lost, including in the financial sector, which would be hard hit by the stock market declines. Also, the unemployment rate would jump to about 5% and the economy would contract by nearly half a percent, according to Moody’s.
“It would be a body blow to the economy, and it would be a manufactured crisis,” said Bernard Yaros, aneconomist at Moody’s.
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Key GOP negotiators say talks are not going well
From CNN's Lauren Fox
House Speaker Kevin McCarthy and Rep. Patrick McHenry return to the Speaker's office after talking to reporters at the Capitol on May 22 in Washington, DC.
Chip Somodevilla/Getty Images
Republican negotiators Patrick McHenry and Garret Graves told reporters that negotiations are not going well at all and the White House needs to realize they have to agree to cut spending or no deal can be reached. It was a sober assessment that was in stark contrast to the rosier takes at the White House yesterday.
“They have a tax crisis and they have a debt crisis,” Graves said. “We’re not going to be able to make this deal. We’re not going to be able to move forward.” The Republican claimed that Democrats “try to continue the same trajectory of overspending” and “overtaxing” while burdening the next generation with a “debt that absolutely they cannot afford and certainly didn’t create.”
McHenry once again said the “lack of urgency is apparent.”
Asked what changed between the White House meeting yesterday and the staff meeting last night that caused him to sound so pessimistic, McHenry said: “I thought the White House meeting was reasonably productive. What we need is a team that is fully empowered by the White House to get the thing done. The White House still has this expectation that they can spend more money next year.”
When asked if Republicans would be willing to accept anything less than returning spending to full-year 2022 levels, McHenry responded: “Everybody’s trying to figure out some way to shimmy this thing around. It’s fundamental. You’re spending less money next year than you’re spending this year.”
Graves told reporters that as the negotiators deal with spending, they also have to be dealing with the reality of the other issues that have become part of these talks, including clawing back unspent Covid funds, new work requirements and other issues.
“I think that we need to address those issues first because then it gives us an idea of what type of gap we’ve got to address,” the Republican from Louisiana said.
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Several House Republicans say they still have faith in McCarthy's ability to cut a deal with Biden
From CNN's Lauren Fox
House Speaker Kevin McCarthy and President Joe Biden speaks during a meeting on the debt ceiling in the Oval Office of the White House in Washington, DC, on Monday.
Saul Loeb/AFP/Getty Images
A number of Republicans – even some who haven’t always backed House Speaker Kevin McCarthy – said they are standing by the speaker and are happy with how he’s negotiated up until this point.
“I am very confident in Kevin McCarthy as our speaker,” Rep. Nancy Mace, a Republican from South Carolina, told CNN. “I don’t want speaker McCarthy’s job. That’s a very tough job … he’s got the five families to deal with and a caucus of one right here. He’s doing a great job of pulling people together.”
Asked if McCarthy’s speakership would be at risk if the speaker brought down a watered-down version of the debt ceiling bill the House already passed, Rep. Ralph Norman, a Republican from South Carolina, told CNN, “I am not going there.”
“Kevin got to 218 for a reason and he did a good job,” Norman said. Norman has been among the loudest conservatives saying he doesn’t want McCarthy to bring anything back that isn’t the same as the bill the House already passed.
Rep. Tim Burchett, a Republican from Tennessee who actually voted against the House’s GOP debt ceiling plan, said McCarthy “is very good at deal cutting. I trust him.”
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House majority leader argues Treasury Department is hedging on June 1 default deadline
From CNN's Alayna Treene and Kristin Wilson
House Majority Leader Steve Scalise holds a press conference following a House Republican caucus meeting at the Capitol on May 16 in Washington, DC.
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House Majority Leader Steve Scalise said the Treasury Department appears to be “hedging” on the June 1 default date, and that more “transparency” is needed from Secretary Janet Yellen.
“What we’d like is to see more transparency on how they come to that date. But Janet Yellen herself actually left the door open to delaying that in her tweets yesterday. The comments that she sent out yesterday implied that it’s June 1 or later, giving some openness to the idea that June 1 may not be the so called X-date,” he said. “It looks like they’re hedging now and opening up the door to move that date back.”
The comments echo what members of the right-flank House Freedom Caucus have been saying, suggesting that the X-date is fungible.
“We haven’t seen her work,” HFC Chair Scott Perry told CNN. “We haven’t seen any figures.We also know that the quarterlies are coming in at the end–at the middle of the month… There’s absolutely no reason to do this and we all know it.”
House Majority Whip Tom Emmer suggested members of Congress in the Senate “come back from their short vacation” and pass the House bill, which cleared the House on a party-line vote and has been deemed dead on arrival in the upper chamber.
Emmer also attempted to put the blame on Democrats and President Joe Biden if the government ultimately defaults on its debt, parroting talking points circulated by House Speaker Kevin McCarthy’s office Tuesday morning about the timeline of negotiations. “The question actually remains, ‘What is Joe Biden and his administration willing to give to provide solutions to the debt ceiling crisis and put this country on a better financial path?’ … It is Joe Biden and the Democrats who will have to explain to every American why they decided to default for the first time in this nation.”
Scalise reaffirmed that GOP leaders believe the requirement on Congress to regularly raise the debt limit is useful for keeping a check on federal spending, despite some lawmakers questioning whether it’s a constructive mechanism.
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White House negotiators arrive to Capitol to resume debt ceiling talks
From CNN's Haley Talbot
White House negotiators arrived at the Capitol moments ago to resume talks on the debt ceiling at 11 a.m. ET.
They did not comment on the status of negotiations but did acknowledge the press corps.
White House aide Steve Ricchetti said they are “good” and “got about the same amount (of rest) you did.”
And Office of Management and Budget Director Shalanda Young added, “you’re out early, you’re out late.”
They refused to answer any other questions. “We are just going to work,” Ricchetti added.
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Financial consultants warn long-term US default could cause stock market to tank by more than 40%
From CNN’s Kevin France
Traders work on the floor of the New York Stock Exchange on May 03.
Spencer Platt/Getty Images
Financial experts predict the S&P 500 could dip by more than 40% if the US economy experiences a long-term debt default.
“The real concern is whether it’s going to be long and protracted. That is where you get some unprecedented downturns really. The market could tank more than 40%,” Doug Flynn, co-founder of Flynn Zito Asset Management, told CNN’s Christine Romans Tuesday.
Political risk analyst Maximilian Hess echoed Flynn’s sentiments, saying the nation’s ability to borrow in the future could be compromised if Congress doesn’t come to an agreement to raise the debt limit before the looming “X” date.
Hess added that public trust could be forever eroded if the United States fails to pay its debts.
“The US dollar and the US debt system is essentially an anti-fragile system,” Hess said. “The loss of trust could push others to move into other currencies, such as the Chinese yuan and renminbi. Those are things that are not in the US geopolitical and geoeconomic interests.”
The debt — which is owned by the public, pension funds, insurance companies and, to a lesser extent, foreign governments — is considered a safe form of investment and an important backbone of the economy.
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McCarthy to Republicans: "We are nowhere near a deal"
From CNN's Melanie Zanona and Lauren Fox
House Speaker Kevin McCarthy of Calif., talks to reporters after meeting with President Joe Biden about the debt ceiling in the Oval Office of the White House on Monday, May 22.
Alex Brandon/AP
House Speaker Kevin McCarthy told Republicans during a closed-door meeting that they are still far from reaching a bipartisan agreement on the debt ceiling and asked his members to continue to remain united behind him, according to sources in the room.
But during the open mic portion of the meeting, at least one hardline member – Rep. Chip Roy of Texas – complained about Republicans seeking a compromise that waters down what they passed in the House, according to a source in the room. Roy said it’s about saving the country, not seeking a deal.
Meanwhile, Republican Study Committee chair Kevin Hern said the speaker told members they should go home to their districts if a deal isn’t reached by the White House and Republican negotiators by Memorial Day weekend. Members can always be called back, but Hern told reporters that this is a deal that has to be reached between a few key people.
“The negotiations are with the speaker and his team and the White House and their team. And so the rest of us being here, just waiting around, doesn’t do any good for anyone,” Hern said.
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Key GOP negotiator says White House and McCarthy team "still far apart" on debt limit deal
From CNN's Morgan Rimmer
GOP Rep. Garret Graves, one of the key negotiators representing House Speaker Kevin McCarthy in debt limit talks with the White House, said “we’re still far apart,” after they met late last night.
“We’re still far apart. Until this administration is willing to recognize that they are having record spending, record deficits and record taxes, then we’re not going to be able to come together,” he said.
Graves said the White House’s refusal to cut spending is “a red line” for House Republicans.
“They are refusing to truly change the trajectory, to truly reduce spending, and that is a red line,” he said.
Asked about the time crunch to pass a deal before the nation defaults, Graves said, “I’m very concerned about timing, which is why they need to come to the table, which is why it was irresponsible for them to wait 100 days before they were willing to engage and begin having these conversations.”
He argued that the White House negotiators are not willing to work around the clock. “We told them on the first day of negotiations that we would stay in that room 24 hours. We told them that. They said, ‘No let’s wait, let’s break, let’s do meetings in the morning and afternoons.’”
He continued, “Our commitment stands. We’ll work all night, we’ll do 24 hours but we’re not going to continue on this trajectory. It’s irresponsible and it jeopardizes the future the next generation.”
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Minneapolis Fed president floats suggestion of suspending debt limit
From CNN's Elisabeth Buchwald
Neel Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis, during an interview with Reuters in New York City on May 22.
Mike Segar/Reuters
With just over a week until the United States is expected to default on its debt, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said it’s worth considering suspending the debt limit after the current situation is resolved.
In the event of a default, which Kashkari said he does not anticipate happening, the Fed does not have any ability to protect Americans from the economic downsides, he said.
“A default would be a message of eroding confidence in America,” he said. “We [the Federal Reserve] can’t do anything about that. Only Congress and the executive branch can fix this.”
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Are you worried about the US defaulting on its debt? Share your thoughts with us
From CNN's Alicia Wallace
The United States risks could run out of money to pay its bills if Congress is not able to reach an agreement on the debt ceiling.
It could happen as soon as June 1, according to warnings from Treasury Secretary Janet Yellen, and could have potentially have far-reaching and dire consequences for Americans, including people who receive benefit payments or run a small business or who are trying to buy a home.
We’re hoping to hear from you about how closely you’re watching these developments; what actions, if any, you’ve taken to prepare in case of a default; and how you think this could affect you, your job and your family.
Please share your experiences and thoughts with us below:
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Why markets will likely slide if the debt ceiling isn’t resolved soon
From CNN's Elisabeth Buchwald
People walk along Wall Street outside of the New York Stock Exchange on May 3.
Spencer Platt/Getty Images
If the United States defaults on its debt, it would be catastrophic for the economy. Millions of jobs would be impacted, the cost of borrowing money would skyrocket and government benefits many people rely wouldn’t be sent on time.
Markets have been mostly indifferent to the debt ceiling since it was breached in January. That is bound to change as the default date, also known as the X-date, approaches.
President Joe Biden and House Speaker Kevin McCarthy met for more talks on Monday afternoon after a weekend with little progress to avoid the nation’s first default. McCarthy told reporters that he had a “productive discussion” with Biden, but said a deal has not yet been reached.
The S&P 500 fell by more than 16% over the span of five weeks in 2011 when the United States narrowly avoided a default, which led to a downgrade of the nation’s debt. But two months after the downgrade, the S&P 500 recovered those losses and ended the year virtually unchanged.
Even if a deal isn’t reached in time and the United States defaults, it’s unlikely to go unresolved for a long stretch of time, experts told CNN. And when it does get resolved, it’s quite possible there will be a “relief rally,” said Callie Cox, eToro US investment analyst.
But there could be a correction period immediately following a deal as the Treasury replenishes the cash it burned through when it couldn’t borrow money, said Michael Reynolds, vice president of investment strategy at Glenmede.
“We have so many other pressures weighing on the economy,” she said. The US economy has spent the past year defying recession forecasts, but its luck could run out later this year, according to a new survey of business economists. Many big-box retailers’ earnings reports indicated that consumers are cutting back on non-essential purchases, a possible sign of a looming recession.
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Here's how you can prepare for a debt default
From CNN's Ramishah Maruf
The US Capitol is seen in Washington, DC, on May 22.
Mandel Ngan/AFP/Getty Images
There isn’t much precedent on what to do in case of a default, since it’s never happened before. If the government doesn’t raise the ceiling, the United States won’t automatically go into default. The Treasury Department has enough to cover some obligations, but it’s uncertain what protocol it would adopt to handle payments.
Here’s how you can prepare for a potential debt default:
Military families should keep extra cash: Some Department of Defense workers may see their paychecks delayed — that includes more than 2 million federal civilian workers and around 1.4 million active-duty military members. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers, CNN previously reported.
Mike Hunsberger, owner of Next Mission Financial Planning and an Air Force veteran, said military families should make sure they have extra money and that their emergency funds are topped off to weather a missed paycheck. For those with thin budgets, Hunsberger suggested looking again to see if there’s anything else to cut back on, at least temporarily.
Every military service has an organization that can help with temporary loans for those who could be in a crunch — think a car breaking down or an emergency ticket home for a family death, Hunsberger said. Some military-facing banks could also be of assistance.
Those who receive veterans benefits should also have an emergency stockpile prepared — disability payments and pensions for some low-income veterans and their surviving families could be affected by a default.
Expect volatility in bonds: Bond investors should expect volatility even during deal negotiations. US Treasuries are considered to be the world’s safest assets because they are backed by the full faith and credit of the United States, but the uncertainty over a debt ceiling deal adds risk.
With Treasuries, the key question is when investors will be repaid, not if.
Experts assume even if the US briefly goes past the X-date, it will be resolved quickly and the government will make good on its obligations, CNN reported.
If you invest in bonds, pay attention to when your Treasury bills are maturing.
Those who have invested in Treasury bills maturing on or right after June 1 and who definitely need their money at that time — for example, to pay their own bills — might consider selling those bills now and reinvesting in bills that mature sooner, Collin Martin, director and fixed income strategist at the Schwab Center for Financial Research, suggested in an interview with CNN.
And for those into bond funds, check to see that the bond portion of your portfolio has adequate exposure to intermediate and longer-term bonds, rather than being too heavily weighted toward short-term higher yielding bonds.
Democrats argue Congress already spent the money and must be allowed to repay America’s debt holders without an embarrassing and economically disastrous default.
While House Speaker Kevin McCarthy emerged from a meeting at the White House with President Joe Biden on Monday evening without a deal, he underscored that both parties are united in their goal of reaching an agreement to raise the nation’s debt limit.
The clock is ticking down to a US default, but it’s not entirely clear when the US will officially run out of cash. It’s also not clear what a potential deal to avert a first-ever default will look like.
If you haven’t been following the debt drama, here are answers to some questions to get you up to speed.
When will the government run out of cash: It’s a moving target. The US actually exceeded its borrowing authority back in January, but Treasury Secretary Janet Yellen authorized “extraordinary measures” – essentially moving money around – to give lawmakers time to act. She has said those extraordinary measures will be exhausted as soon as June 1, but third-party estimates suggest it could end up taking weeks or even months longer. The government takes in and spends money every day. It also takes cash from public debt it has sold to cover expenses.
How the negotiations have unfolded: In April, House Republicans passed a bill to raise the debt ceiling paired with nonspecific requirements for spending cuts, to undo climate change-related spending championed by Democrats and to impose new federal work requirements for Medicaid recipients, among other things. The one-sided bill was a nonstarter for Democrats, who ignored it in the Senate. But it proved that Republicans could come together and was seen as a sort of opening bid in negotiations. Those negotiations really got underway in early May, when McCarthy and Biden met at the White House. Staff-level discussions between the White House and congressional Republicans resumed Sunday evening after Biden and McCarthy had spoken by phone in the afternoon, according to a White House official. Biden and McCarthy met on Monday and despite projecting optimism, they did not announce a deal.
Is cutting spending the only way to address the debt? No. Just as Democrats are generally opposed to spending reductions, Republicans are generally opposed to raising taxes. Along with the growth in government spending, the cutting of tax rates plays an important role in this story.
When would a default start to really hurt? Nearly every economist and policy maker agrees that a sustained default would have catastrophic consequences for the US economy and for the many millions of Americans who rely on Social Security, Medicare, government paychecks or government help. The stock market could lose a large portion of its value if investors were spooked by the instability. But a default of a day or two might not seem quite as horrible, particularly if there were not any interruption in government services.
What would happen immediately after default? Any default would have consequences. If investors no longer trusted the US government to pay its bills, the cost of the government borrowing money could rise – particularly if credit-rating agencies downgrade America’s sterling credit rating. That’s what happened in 2011 in the lead-up to the last significant debt ceiling standoff, increasing the amount America had to pay to make good on its debt obligations.
If the White House and Republican leaders announce a deal, is that the end of it? No. And this is a very important point. Any deal announced by the negotiators must pass in the House and the Senate. That takes time, which is why a deal must be reached before June 1 in order to avoid a June 1 X date. McCarthy had argued that this past weekend was the real, functional deadline. There’s also a very real question about whether House Republicans will coalesce around whatever deal McCarthy makes. His position as speaker is tenuous and if he agrees to a bill that Democrats find acceptable, he could face a revolt among conservative Republicans. Whatever passes through the House will have to get support from most Republicans there.
Biden administration says House Republicans continue to "demand draconian cuts" as debt ceiling deadline looms
From CNN's Arlette Saenz
U.S. Speaker of the House Kevin McCarthy (R-CA) and Rep. Patrick McHenry (R-NC) leave the White House after meeting with U.S. President Joe Biden at the White House on May 22.
Alex Wong/Getty Images
The White House is warning House Republicans against continuing to “demand draconian cuts to critical programs Americans rely on,” according to a new fact sheet released Tuesday.
The fact sheet released by the Office and Management and Budget details how proposals put forth by House Republicans could lead to cuts of “at least 30 percent across programs including education, research, public safety, public health, and other areas” if the GOP preserves spending levels for defense, Veterans Affairs and Homeland Security. This assessment is similar to one outlined by OMB Director Shalanda Young in a memo last week.
House Appropriations Chairwoman Kay Granger announced late Monday evening that all markups have been postponed for the week citing ongoing negotiations between the White House and House Speaker Kevin McCarthy.
“Given recent developments in the negotiations between Speaker McCarthy and the President, and in order to give the Speaker maximum flexibility as talks continue, the Committee will postpone this week’s markups,” Granger said in a statement.
This comes as negotiations between President Biden and House Speaker Kevin McCarthy and their teams are still underway as the US barrels even closer to a potential default. Both sides described Monday’s meeting between Biden and McCarthy as “productive” while acknowledging areas of disagreement remain with spending levels being one of the key sticking points in discussions.
The fact sheet says some of the programs which could be impacted by proposed Republican cuts include, “cancer research at the National Institutes of Health, Meals on Wheels for seniors, preschool and childcare for thousands of children, as well as on veterans’ programs outside the Department of Veterans Affairs.”
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Biden and McCarthy remain hopeful — but there’s still no debt limit deal
From CNN's Maegan Vazquez and Donald Judd
U.S. President Joe Biden meets with House Speaker Kevin McCarthy (R-CA) in the Oval Office of the White House on May 22 in Washington, DC. Biden and McCarthy were meeting to discuss raising the debt limit in an effort to avoid a default by the federal government.
Drew Angerer/Getty Images
The clock is ticking for President Joe Biden and House Speaker Kevin McCarthy to come to agreement to avoid a first-ever default on the nation’s debt. And although there are some positive signs suggesting they’re closer to a consensus, there is still no deal.
They face a looming deadline, with Treasury Secretary Janet Yellen reaffirming in a letter to McCarthy on Monday that it is “highly likely” that the US Treasury will not be able to pay all of its bills in full and on time as soon as June 1.
“I felt we had a productive discussion. We don’t have an agreement yet, but I did feel the discussion was productive in areas that we have differences of opinion,” McCarthy said outside the West Wing, adding that the “tone” of Monday’s meeting was also “better than any other time we’ve had discussions.”
Biden, in a statement, similarly called the discussion in the Oval Office productive while acknowledging that areas of disagreement persist.
McCarthy’s team and White House negotiators have been meeting daily in an effort to come to a consensus on the budget and the debt ceiling. Negotiators will meet through the night on Monday and the speaker and the president will continue to speak each day, McCarthy said.
The speaker on Monday also acknowledged that he does not plan to waive the House’s three-day rule – which requires that legislation be posted for at least three days to allow House members to study it before it can be voted on.
