Even as Congress adjourns for a holiday weekend, US President Joe Biden reports that progress has been made in debt ceiling negotiations with Republican leader Kevin McCarthy.
To pay its bills, the parties aim to raise the government’s borrowing cap for two years.
Despite assurances that negotiations are progressing, investors’ concerns of a US default on its debts have grown.
Mr. Biden mentioned “multiple fruitful conversations” with Mr. McCarthy.
During a Thursday event at the White House, the president stated that his staff remained in contact with the team of House Speaker Kevin McCarthy and that the two factions were “making progress.”
He added, “I have repeatedly stated that defaulting on our national debt is not an alternative.” He stated that Americans deserved certainty regarding issues like social security payments.
Democrats and Republicans argue over the debt ceiling, which limits government borrowing.
If no agreement is reached, the Treasury says the US will be unable to pay all its debts on June 1.
According to analysts, there could be severe economic repercussions if the United States fails to fulfill its obligations.
Two-year contract
The details of a potential agreement, as outlined by Reuters and the New York Times, could allow Republicans to claim that they reduced expenditure, while Democrats could claim that they protected domestic programs.
A US official told Reuters that the White House is considering reducing the Internal Revenue Service’s (IRS) plan to employ more auditors to target wealthy Americans.
The Times reported that negotiators were nearing an agreement that would raise the debt ceiling for two years while imposing strict spending limits on everything other than the military and veterans for the same period.
Republicans want to slash government programmes to raise the $31.4tn (£25tn) borrowing ceiling.
Mr. Biden stated that the two sides had differing visions for how to get America’s “financial house in order.” But added that all involved leaders agreed that a default was unacceptable.
Mr. McCarthy, who represents Republicans in the House and has been the most visible public face of his party’s negotiations, previously stated that Democrats and Republicans had worked past midnight on Wednesday and would continue to negotiate.
He stated, “There are still a few issues that must be resolved.” We will work around the clock to make this happen.
Another influential Republican said a debt ceiling agreement was “likely” by Friday afternoon.
We are edging closer to an agreement. Rep. Kevin Hern told the Reuters news agency that he believes they are currently focusing on the subtler details. There will presumably be an agreement by tomorrow afternoon.
“Neither side will get everything they want,” said White House press secretary Karine Jean-Pierre.
Earnings releases buoyed the S&P 500 and Nasdaq around noon on Thursday, while the Dow Jones Industrial Average lost 0.6%.
This occurred after several days of declines.
One of the three largest credit rating agencies, Fitch Ratings, announced on Wednesday that it had placed the United States on “negative watch” – the first step towards reducing the country’s credit rating.
It cited “increased political partisanship” and feeble governance in comparison to other nations with its highest rating.
“The brinkmanship over the debt ceiling, the failure of US authorities to meaningfully address medium-term fiscal challenges that will result in rising budget deficits, and a growing debt burden indicate downside risks to US creditworthiness,” the company stated.
Any agreement reached between the two parties must be drafted into legislation and ratified by Congress.
Mr. McCarthy gave legislators 72 hours to review the legislation and 24 hours to return to Washington early. If an agreement is reached this week, a vote could occur early the following week.
Since the Senate must vote on the proposal before sending it to the White House for signature, objections are limited.
In addition, lawmakers could temporarily raise the debt ceiling to buy more time for negotiations.
