News reports said President Joe Biden and Congressional Republican leader Kevin McCarthy were close to reaching a deal that would raise the government’s $31.4 trillion debt ceiling for two years while limiting spending on most programs.
A default could upend global financial markets and push the U.S. into a deep recession. On Thursday, credit rating agency DBRS Morningstar reviewed the US for a possible downgrade, echoing similar warnings from Fitch, Moody’s and Scope Ratings.
Fitch warned it could downgrade the US’ triple-A rating due to debt-ceiling “brinkmanship”. Another agency, S&P Global, downgraded US debt after a similar debt-ceiling standoff in 2011.
The months-long impasse has rattled Wall Street, weighing on U.S. stocks and pushing up U.S. borrowing costs. Deputy Finance Minister Wally Adeyemo said concerns over the debt ceiling had pushed up the government’s interest costs by $80 million so far.
The potential deal would boost funding for discretionary spending for the military and veterans while largely keeping nondefense discretionary spending at current year levels, an official told Reuters on condition of anonymity.
“It’s time for all these games here,” Democratic Representative Don Davis, a U.S. Air Force veteran, said at a news conference.
Representative Kevin Hearn, who leads the powerful Republican Research Committee, told Reuters a deal could be reached by Friday afternoon.
The official said the White House is considering scaling back its plans to increase IRS funding to hire more auditors and target wealthy Americans.
Another U.S. official said IRS funding was an open issue, but the main purpose was to ensure the agency carried out the president’s priorities, even with small cuts or shifts in funds.
The final agreement will specify the total amount the government can spend on discretionary programs such as housing and education, but will not break it down into individual categories, according to a person familiar with the matter. Another source said the total would be well over $1 trillion, with a gap of just $70 billion between the two sides.
‘not easy’
The White House said the two met virtually on Thursday. Biden said they still disagree on the scope of the cuts.
“I don’t think all the burden should fall on the middle and working class in America,” he told reporters.
House Speaker McCarthy said the two sides have yet to reach an agreement. “We know it won’t be easy.”
It’s unclear how much time Congress has to act. The Treasury, which had been warned it might not be able to pay all its debt as early as June 1, said on Thursday it would sell $119 billion worth of bonds maturing that day, suggesting to some market watchers that it was not an iron-clad deal. Deadline to wear.
“They’ve said in the past that they’re not going to announce actions that they don’t think they can fix,” said Gennadiy Goldberg, senior rates strategist at TD Securities in New York. “So I think that’s a positive sign.”
Any deal must pass the Republican-controlled House of Representatives and the Democratic-controlled Senate. That could be tricky, as some right-wing Republicans and many liberal Democrats say they are uneasy at the prospect of a compromise.
“I don’t think everyone ends up being happy. That’s not how the system works,” McCarthy said.
Democratic Representative Mark Takano said Biden rejected Republican proposals to strengthen job requirements for anti-poverty programs and loosen rules on oil and gas drilling.
Democrats have focused their attacks on what they say are devastating cuts to federal aid to veterans — from health care and food aid to housing aid — if Republicans get their way in the negotiations.
