President Joe Biden and Republican Speaker Kevin McCarthy are nearing a two-year deal to rein in government spending and avert a default on the U.S. debt, raising hopes of an end to fiscal consolidation in the world’s largest economy.
People familiar with the potential deal said negotiators expect to finalize the deal in the coming days, before the June 1 deadline in which the U.S. will run out of money to pay all of its financial obligations.
Over the course of Thursday, both the White House and Republicans on Capitol Hill suggested that negotiations were in a better place, though nothing had been concluded. If a deal is reached, it still faces a hair-raising vote in a narrowly divided Congress to be sent for Biden’s signature, potentially extending uncertainty over America’s fiscal future into next week.
“Speaker McCarthy and I have had many productive conversations, and our staff continues to meet as we speak — and they’re making progress,” Biden said Thursday afternoon, striking an upbeat tone in the talks. “I am confident that we will come to an agreement that will allow us to move forward and protect the hardworking Americans of this country.”
His comments came a day after credit rating agency Fitch warned it could downgrade the U.S.’s triple A rating due to “brinkmanship” over the debt ceiling, amid concerns that the financial crisis could intensify in the coming days. A compromise.
Both Biden and McCarthy are facing calls from ranking members of their parties not to give up concessions in the final stages of negotiations.
McCarthy spoke by phone with former President Donald Trump on Thursday, who has called on Republicans to accept a default if Biden doesn’t agree to deep spending cuts. He later met 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’s going to take some time to get it done, and we’re working hard to get it done.”
According to people familiar with the negotiations, the deal will set the course for U.S. fiscal policy until 2025, when a new Congress and administration take office after next year’s general election. Biden is running for a second term as a Democrat, while Trump and Florida Gov. Ron DeSantis are the frontrunners to win the Republican nomination.
The measures include raising the debt ceiling and curbing spending until then, speeding up approvals for major infrastructure projects on the final negotiating schedule and adding new work requirements to social safety net programs.
The two sides are also debating whether to cut funding for the Internal Revenue Service, the U.S. tax collection agency, which was approved last year so it could better tackle tax evasion and evasion among wealthy families, people familiar with the matter said.
House members are headed home for the Memorial Day long weekend, but have been told they must return to Washington on short notice. “The sand is almost out of the hour for a potential debt ceiling deal,” Chris Kruger, 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 reach a compromise as quickly as possible to avoid a devastating economic and financial blow.
“It really starts to get hairy if there’s no deal in the next 24 hours,” said Neil Bradley, chief policy officer at the U.S. Chamber of Commerce. “We’re in that window where you want things to go well.”
Speaking earlier at an event organized by the investment firm, Deputy Treasury Secretary Wally Adeyemo lamented that the stance has gone to the wire.
“I think everybody’s goal is to make sure the debt ceiling is raised. But the most important thing, everyone in this room knows [and] “The American people know we shouldn’t be here,” he said. “This is a manufactured crisis.”