President Joe Biden and Republican House speaker Kevin McCarthy on Monday evening failed to reach a fiscal deal to avoid a default on US debt, but talks were set to continue, suggesting an agreement could be within reach.
The two men met at the White House for a round of negotiations towards a deal that is seen as critical for the fate of the US and global economic outlook and financial markets.
“I think the tone tonight was better than any other time we’ve had discussions . . . we still will 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 are going to talk every day . . . until we get this done.”
Biden later issued his own statement with a similar assessment. “I just concluded a productive meeting with Speaker McCarthy about the need to prevent default and avoid a catastrophe for our economy,” Biden said. “We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.”
Earlier in the afternoon, Janet Yellen, the Treasury secretary, had warned that it was “highly likely” the US would be unable to pay all of its bills by early June, and potentially as soon as June 1, which is 10 days away.
While Biden and McCarthy did not reach a final deal by the end of the gathering, they instructed staff to step up negotiations in an effort to seal a deal that could pass both houses of Congress and be signed by the president before the deadline.
McCarthy has refused to increase the US’s $31.4tn borrowing limit, which is set by law, unless the White House and Democrats agree to deep spending cuts and accept new curbs on eligibility for social safety net programmes.
The stand-off has lasted for months, but Biden and the Republican House leader only this month launched negotiations over a fiscal deal that could resolve the crisis. The president was forced to cut short a trip to Asia to return to Washington to continue talks.
The urgency of an agreement has become even more clear after repeated warnings from Yellen that time was running out before the Treasury ran out of money.
“It is highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially 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.
While McCarthy is facing pressure from the right flank of his party not to make additional concessions to the White House, some Democrats are urging Biden not to cave in to Republicans. Several Democrats have called on the White House to invoke the 14th amendment of the constitution, which states the “validity” of US public debt shall not be “questioned”, and continue borrowing above the limit.
Although Biden said on Sunday that he believed he had the “authority” to do that, he said it would not be a solution in the short term.
Private economists continue to argue the government has a bit more room compared to Yellen’s projections. Oxford Economics on Monday estimated that the Treasury would be able to “squeak by” until June 14.
However, it warned there was “no margin for error”, and estimates related to incoming receipts, cash balances and other extraordinary measures were subject to change.
Economists at Goldman Sachs, meanwhile, forecast the Treasury’s cash on hand would drop under $30bn by June 8 or 9. “At that point, we believe there are even odds that the Treasury exhausts its funds entirely at that point,” they wrote in a note on Friday.