McCarthy said some progress has been made in the US debt ceiling talks at the White House

WASHINGTON, May 25 (Reuters) – White House and Republican negotiators made some progress in late-night talks on raising the $31.4 trillion government debt ceiling, the first congressional Republican Kevin McCarthy told reporters Thursday.

The talks are going down to the wire as the Treasury Department has warned the government may not have enough funds to cover all of its expenses by June 1, which without an agreement could trigger a potential disaster. in the economy.

Democratic President Joe Biden and House of Representatives Speaker McCarthy are at odds over spending, taxes and work requirements for anti-poverty programs. But both sides said they believed they could find common ground after hours of discussions in their negotiating teams on Wednesday that they described as productive.

“We worked well past midnight last night,” McCarthy told reporters. “I think we’ve made some progress. There are still some outstanding issues and I’ve directed our team to work 24/7 to try to solve this problem.”

Even as he made that statement, McCarthy was preparing to allow lawmakers to leave Washington on Thursday for a weeklong holiday recess, with the proviso that they must be ready to return for a vote.

Time is short. The Treasury Department says the United States could run out of money to pay its bills by June 1, seven days from now, if the debt ceiling is not raised. A US default could upend global financial markets and push the United States into recession.

But the Treasury’s forecast is not ironclad and some private sector analysts reckon the government could go a week without defaulting, leading some hardliners in McCarthy’s caucus to dismiss the importance of the June 1 deadline.

Asked if the Treasury could meet its debt obligations after June 1 without raising the debt ceiling, McCarthy said: “There will always be money coming in. But I’ll leave that to the Treasury secretary.

Ratings agency Fitch said on Wednesday it had put the United States’ “AAA” credit rating on negative watch, citing growing political disputes around the country’s debt limit. Fitch last put the United States on negative watch in October 2013.

“Brinkmanship on the debt ceiling, failure of US authorities to meaningfully address medium-term fiscal challenges…

The months-long standoff has spooked Wall Street, weighing on U.S. stocks and pushing the country’s borrowing costs higher. The yield on US Treasury bills maturing in early June rose in early Thursday trading, in a sign of investor unease.

THREE DAYS

Congress needs several days to pass any deal through the Republican-controlled House and Democratic-controlled Senate. Lawmakers often have to raise the self-imposed debt limit to cover the cost of spending and tax cuts they’ve already approved.

Representative Steve Scalise, the No. 2 House Republican, said lawmakers in that chamber get three days to read any debt-ceiling bill before they have to vote on it. In the Senate, any member can delay action for days.

The House was supposed to leave Washington on Thursday for a weeklong recess over the Memorial Day holiday, though Scalise warned lawmakers to be ready to be called back to Washington for a vote if necessary.

McCarthy insisted that any agreement must cut discretionary spending next year and limit the growth of spending in future years, to slow the growth of the US debt, now equal to the annual output of the economy.

Biden has offered to freeze spending at current levels next year and has proposed massive tax increases to help curb the debt.

Credit rating agency Moody’s said it may reassess its top rating for the US government if lawmakers fail to reach an agreement. An earlier debt-ceiling standoff in 2011 prompted rival ratings agency S&P Global to downgrade its rating.

Lawmakers from both parties are reluctant to compromise. Hardline House Republicans insist that Biden must agree to the sharp spending cuts they passed last month. Some Democrats have accused Republicans of holding the economy hostage to advance an agenda that would otherwise fail.

“They’re looking to waste time, play games and make sure we default because they think it might be a political advantage,” Democratic Representative Ilhan Omar said at a news conference Wednesday.

Biden spent months saying he wouldn’t negotiate on raising the debt limit to reverse course and begin talks with McCarthy in the past few weeks.

The last time the federal government came close to default was in 2011, with the same division of power in Washington — a Democratic president and majority in the Senate and a Republican-controlled House.

Reporting by David Morgan, Steve Holland, Andrea Shalal, Richard Cowan, and Gram Slattery; written by Andy Sullivan; Editing by Scott Malone, Leslie Adler and Chizu Nomiyama

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