On Friday, a key negotiator on the debt ceiling for House Speaker Kevin McCarthy expressed the need to pause talks as negotiations with the White House hit a sudden impasse at the Capitol.
Representative Garret Graves, who McCarthy selected to lead the negotiations, addressed the press after a one-hour session, pointing out the gaps between House Republicans and the Democratic administration. Graves stated that the discussions had become unproductive and unreasonable, leaving an uncertain timeline for resuming talks.
The sudden halt in the debt limit negotiations caused concern on Wall Street, leading to a market downturn. This development raised fears of a potentially devastating default on U.S. government debt, prompting President Joe Biden’s administration to urgently seek a deal with Republicans under McCarthy’s leadership. The government wouldn’t be able to fulfill its financial obligations without an increase in the borrowing limit.
White House negotiators refrained from commenting on the situation as negotiations broke off.
The negotiators had convened behind closed doors at the Capitol for the third consecutive day, aiming to reach an agreement before potential House votes the following week. The looming deadline of June 1, when the Treasury Department is projected to exhaust its cash reserves to pay off the accumulated debt, added urgency to the negotiations. Experts have warned that even the threat of a debt default would have severe repercussions on the economy.
The stock market reacted to the stalled negotiations, with the S&P 500 and the Dow Jones Industrial Average experiencing fluctuations from gains to losses. The markets had been trending positively earlier in the week due to expectations of a deal being reached.
Republicans are seeking substantial spending cuts that President Biden has thus far been unwilling to accept. Any agreement would require bipartisan support in the divided Congress to be enacted into law. President Biden, who was attending the Group of Seven summit in Japan, had already planned to curtail his trip and return to Washington on Sunday. He is supposed to be receiving updates on the negotiations from his team on Friday evening.
The White House didn’t respond right away to Representative Graves’ comments. Another Republican negotiator, Representative Patrick McHenry of North Carolina, acknowledged the “serious gap” between the two sides as he left the meeting. With Republicans demanding spending cuts and policy changes, President Biden is facing resistance from Democrats, particularly progressives, who argue against conceding to demands they believe would harm the American population.
House Speaker McCarthy is under pressure from the hard-right faction within his party to secure the best possible deal for Republicans. Failure to deliver on their expectations could jeopardize his leadership position. The conservative House Freedom Caucus stated on Thursday that further discussions should be suspended until the Senate takes action on the House Republican bill, which was passed last month to raise the debt limit until 2024 in exchange for spending caps and policy changes. President Biden has declared his intention to veto that Republican measure.
In the Senate, controlled by the Democratic majority, Republican leader Mitch McConnell has assumed a less visible role and urges President Biden to negotiate directly with Speaker McCarthy. McConnell placed the blame on Biden for taking months before even agreeing to engage in negotiations with the speaker. In a tweet, McConnell emphasized that they were the only two individuals capable of reaching an agreement and that the White House needed to demonstrate a serious commitment, given the situation’s urgency.
Democrats are cautious about striking a deal with Republicans and vehemently oppose the GOP’s proposal to shield defense and veterans’ accounts from spending limits. They argue that such cuts would disproportionately impact other domestic programs. Republicans are also pushing for stricter work requirements for government aid recipients. While President Biden indicated a willingness to consider the idea, congressional Democrats have rejected it outright.
Despite the stall in the debt ceiling, Jerome Powell, the Fed’s chairman, said that the Fed is unlikely to raise rates in June. This indication provided some clarity amidst a series of conflicting statements from various Federal Reserve officials.