Debt limit talks resumed at the U.S. Capitol late Friday, a sudden turnaround after negotiations came to an abrupt standstill earlier in the day when Republican House Speaker Kevin McCarthy said it's time to “pause” negotiations, and a White House official acknowledged there are “real differences."
The official, who was granted anonymity to talk about the private discussions, confirmed late Friday the talks were back on.
"We’ll be back in the room tonight,” McCarthy said on Fox Business News.
President Joe Biden’s administration is racing to strike a deal with Republicans led by McCarthy as the nation careens toward a potentially catastrophic debt default if the government fails to increase the borrowing limit, now at $31 trillion, to keep paying the nation’s bills.
Earlier in the day, McCarthy said resolution to the standoff is “easy,” if only Biden's team would agree to some spending cuts Republicans are demanding. The biggest impasse was over the fiscal 2024 top-line budget amount, according to another person briefed on the talks and granted anonymity to discuss them. Democrats staunchly oppose the steep reductions Republicans have put on the table as potentially harmful to Americans.
“We’ve got to get movement by the White House and we don’t have any movement yet,” McCarthy, R-Calif., told reporters at the Capitol. "So, yeah, we’ve got to pause.”
The White House official had said at that time there are “real differences” between the parties on the budget issues and further “talks will be difficult.”
The official added that the president’s team is working hard towards a “reasonable bipartisan solution” that can pass both the House and the Senate.
Wall Street turned lower as negotiations on raising the nation’s debt limit came to a sudden halt, raising worries that the country could edge closer to risking a highly damaging default on U.S. government debt.
The president who has been in Japan attending the Group of Seven summit had no immediate comment. Biden had already planned to cut short the rest of his trip and he is expected to return to Washington later Sunday.
White House press secretary Karine Jean-Pierre said Biden planned to be briefed on the negotiations by his team Friday evening. Biden had departed early from a Friday night dinner with G7 leaders in Hiroshima.
Negotiators met Friday for a third day behind closed doors at the Capitol with hopes of settling on an agreement this weekend before possible House votes next week. They face a looming deadline as soon as June 1 when the Treasury Department has said it will run out of cash to pay the government’s incurred debt.
Republicans want to extract steep spending cuts arguing the nation's deficit spending needs to get under control, rolling back spending to fiscal 2022 levels and restricting future growth. But Biden's team is countering that the caps Republicans proposed in their House-passed bill would amount to 30% reductions in some programs if Defense and veterans are spared, according to a memo from the Office of Management and Budget.
Any deal would need the support of both Republicans and Democrats to find approval in a divided Congress and be passed into law. Negotiators are eyeing a more narrow budget cap deal of a few years, rather than the decade-long caps Republicans initially wanted, and clawing back some $30 billion of unspent COVID-19 funds.
Still up for debate are policy changes, including a framework for permitting reforms to speed the development of energy projects, as well as the Republican push to impose work requirements on government aid recipients that Biden has been open to but the House Democratic leader Hakeem Jeffries has said was a "nonstarter."
“Look, we can’t be spending more money next year,” McCarthy said at the Capitol. "We have to spend less than we spent the year before. It’s pretty easy.”
But McCarthy faces pressures from his hard-right flank to cut the strongest deal possible for Republicans, and he risks a threat to his leadership as speaker if he fails to deliver. Many House Republicans are unlikely to accept any deal with the White House.
The internal political dynamics confronting the embattled McCarthy leaves the Democrats skeptical of giving away too much to the Republicans and driving off the Democratic support they will need to pass any compromise through Congress.
Experts have warned that even the threat of a debt default would send shockwaves through the economy.
Markets had been rising this week on hopes of a deal. But that shifted abruptly Friday after negotiators ended late morning an hour after they had begun.
Rep. Garret Graves, R-La., tapped by McCarthy to lead the talks, emerged from an hourlong session at the Capitol and said gaps remained between House Republicans and the Democratic administration.
“It’s time to press pause because it’s just not productive,” Graves told reporters.
He added that the negotiations have become “just unreasonable” and that it was unclear when talks would resume.
Another Republican negotiator, Rep. Patrick McHenry of North Carolina, said there is a “serious gap” between the sides.
“We’re in a tough spot,” said McHenry, the chairman of the House Financial Services Committee, as he left the meeting.
The S&P 500 went from a gain of 0.3% to a loss of 0.1% and the Dow Jones Industrial Average went from a gain of 117 points to a loss of about 90 points.
As Republicans demand spending cuts and policy changes, Biden is facing increased pushback from Democrats, particularly progressives, who argue the reductions will fall too heavily on domestic programs that Americans rely on.
Some Democrats want Biden to invoke his authority under the 14th amendment to raise the debt ceiling on his own, an idea that raises legal questions and that the president has so far said he is not inclined to consider.
Pressure on McCarthy comes from the conservative House Freedom Caucus, which said late Thursday there should be no further discussions until the Senate takes action on the House Republican plan. That bill approved last month would raise the debt limit into 2024 in exchange for spending caps and policy changes. Biden has said he would veto that Republican measure.
In the Senate, which is controlled by majority Democrats, the Republican leader Mitch McConnell has taken a backseat publicly, and is pushing Biden to strike a deal directly with McCarthy.
McConnell blamed Biden for having “waited months before agreeing to negotiate” with the speaker.
“They are the only two who can reach an agreement,” McConnell said in a tweet. “It is past time for the White House to get serious. Time is of the essence.”
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