President Joe Biden and Republican House speaker Kevin McCarthy failed on Monday night to reach a financial deal to avoid a US debt default, but talks are set to continue, suggesting a deal could be reached .
The two men met at the White House for a round of negotiations toward a deal seen as critical for the fortunes of the US and global economic outlook and financial markets.
“I think the tone tonight is better than any time we’ve had discussions. . . we will still have some philosophical differences, but I felt it was productive,” McCarthy told reporters at the White House after the meeting. “We know the deadline. I think the president and I will talk every day. . . until we finish this.”
Biden later released his own statement with a similar assessment. “I just finished a productive meeting with Speaker McCarthy about the need to avoid default and avoid a catastrophe for our economy,” Biden said. “We reiterate that default is off the table and the only way forward is in good faith toward a bipartisan agreement.”
Earlier in the afternoon, Janet Yellen, the Treasury secretary, warned that it is “very likely” that the US will not be able to pay all of its bills by early June, and possibly as soon as June 1, which is only 10 days away.
Although Biden and McCarthy did not reach a final agreement at the end of the meeting, they directed staff to step up negotiations in an effort to seal an agreement that could pass both houses of Congress and be signed by the president. before the deadline.
McCarthy has refused to raise the $31.4tn US borrowing limit, set by law, unless the White House and Democrats agree to deep spending cuts and accept new eligibility cuts for those social safety net program.
The stand-off has lasted months, but Biden and the Republican House leader just launched negotiations on a fiscal deal that could resolve the crisis. The president was forced to cut short a trip to Asia to return to Washington to resume talks.
The urgency of a deal became clearer after repeated warnings from Yellen that time was running out before the Treasury ran out of money.
“It is very likely that the Treasury will not be able to meet all of the government’s obligations if Congress does not act to raise or suspend the debt ceiling by early June, and possibly as early as June 1,” Yellen wrote on Monday afternoon, the latest in a series of letters to Congress on the subject.
Both sides have continued to blame each other for the stand-off in recent days. The White House accused Republicans of making “extreme” demands that remained unacceptable, and McCarthy blamed Biden for backtracking on his positions.
As McCarthy faces pressure from the right wing of his party not to make further concessions in the White House, some Democrats are urging Biden not to give in to Republicans. Several Democrats have called on the White House to invoke the 14th amendment to the constitution, which states that the “validity” of the US public debt should not be “questioned”, and to continue borrowing above the limit.
Although Biden said Sunday that he believes he has the “authority” to do so, he said it would not be a short-term solution.
Private economists continue to argue that the government has little wiggle room compared to Yellen’s projections. Oxford Economics on Monday estimated that the Treasury will be able to “squeeze” until June 14.
However, it cautioned that there is “no margin for error”, and estimates related to incoming receipts, cash balances and other extraordinary measures are subject to change.
Meanwhile, economists at Goldman Sachs predict that the Treasury’s cash on hand will drop below $30bn by June 8 or 9. “At that point, we believe there are possibilities that the Treasury will run out of its funds when full at that point,” they wrote in a note on Friday.
