(Bloomberg) — President Joe Biden urged his negotiators to continue pursuing a debt-reduction deal after House Speaker Kevin McCarthy indicated the two sides could reach a deal as early as this weekend to avert a catastrophic U.S. debt default.
Lors d’un appel vendredi matin du Japon, où il assiste à un sommet du G7, Biden a declaré à son équipe de negociation triée sur le volet à Washington qu’il était convaincu que le Congres agirait au moment opportun, selon un responsable de White House.
During the call, which lasted about 20 minutes, the official, who spoke on condition of anonymity to describe a private conversation, said negotiators told Biden they were making steady progress. This reflects the optimism expressed hours earlier by McCarthy and Senate Majority Leader Chuck Schumer, who plan to vote in the coming days on a potential bipartisan deal.
Asian stocks opened higher on Friday, with Japan’s Topix rising 0.5% for a sixth consecutive day of gains while Australia’s S&P/ASX 200 rose 0.7%.
According to a White House official, Biden pushed for the talks while trying to protect his legislative achievements and grassroots platforms from cuts Republicans in Congress demand.
McCarthy and Schumer plan to vote in the coming days on a deal that has not yet surfaced.
McCarthy said federal negotiators on a federal debt limit could reach an agreement in principle as early as this weekend when they line up for a vote in the House of Representatives.
“I can now see where the deal might go,” the California Republican told reporters on Capitol Hill Thursday.
US stocks also rose on the news, with the Standard & Poor’s 500 hitting a nine-month high to close near 4,200. The dollar closed at its highest level since March, against all of its developed market peers.
In order to avoid a default, McCarthy said, the House of Representatives will have to vote by next week on any proposed compromise negotiators outlined by him and Biden on Tuesday.
Schumer said the Senate would debate the legislation after it was approved by the House of Representatives. The New York Democrat has alerted senators that they may be called back to Washington for a vote over next week’s recess.
McCarthy’s comments were his most positive reaction yet to negotiations to avoid default, which Treasury Secretary Janet Yellen said could be fraught as early as June 1.
However, McCarthy’s ally, chief financial officer Patrick McHenry, tempered expectations for a quick deal, saying the two sides were “far from close” to reaching an agreement.
“We have a lot of work to do,” the North Carolina Republican said after meeting with negotiators.
Republicans pushed for sweeping spending cuts, as well as regulatory changes that Democrats opposed. The months-long standoff between the two sides since the Treasury reached its debt ceiling in January has led to growing warnings from economists of a devastating recession if the tightrope strategy continues.
For her part, Texas Republican Rep. Kay Granger, chair of the House Appropriations Committee, said the deal was done.
Maryland Rep. Steny Hoyer, the former Democratic leader, also expressed optimism. “I think we’ll get a deal,” he said.
The Treasury Department has implemented special accounting measures since January to stay within the statutory cap of $31.4 trillion, but those measures are steadily losing force.
McCarthy said the five negotiators on both sides were still debating how much to cut spending and how much or how long to raise or suspend the debt ceiling.
He said negotiations take place two to three times a day and there was “structure” in the talks. McCarthy also made it clear that he trusted two of the president’s chief negotiators, Shalanda Young and Stephen Richetti.
In recent weeks, investors have accumulated the risk of the Treasury running out of cash, demanding higher premiums on Treasury notes due in early June. Market participants warned of higher borrowing costs and damage to stocks if they default, with repercussions for the global economy that could match the 2008 crash.
What Bloomberg says for the economy…
In a scenario where default is averted but prolonged stress depresses the market, the potential economic hit is not good:
- A worsening of the short, moderate recession currently expected, with an annual decline in GDP of 1.8% in the second half of 2023.
- The unemployment rate rose to 5.3% by mid-2024 from 4.8% in our baseline scenario.
If the Treasury cuts spending to service the debt, the conservative estimate would put the decline in GDP at 8%.
Anna Wong, chief economist of the United States
For the full note, click here
McCarthy told reporters he continues to press for linking increased work demands with government anti-poverty benefits. This has been a major sticking point in the talks, with progressive Democrats warning Biden against agreeing to the changes.
McCarthy also joked that former House Republican speakers John Boehner and Paul Ryan, who visited the Capitol this week, are glad they weren’t involved in the current debate over debt limits.
– With assistance from Laura Litvan, Bailey House and Rita Nazareth.
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