Joe Biden and opposition Republican leaders Tuesday seemed to inch closer to a potential agreement to avoid a disastrous U.S. debt default, as the threat of an economic nightmare prompted the president to cut short an Asia trip this week hoping to close a deal before a June 1 deadline.
After the latest negotiations ended without a breakthrough, McCarthy, the speaker of the House of Representatives, told reporters the two sides remained far apart on an agreement to lift the debt ceiling. But he said: "It is possible to get a deal by the end of the week. It's not that difficult to get to an agreement."
Democrats were not as positive about a short time frame, but the White House called the meetings "productive and direct." Biden said the leaders reached "an overwhelming consensus ... that defaulting on the debt is simply not an option. Our economy would fall into recession."
"There's still work to do," Biden said at a White House event, saying the parties were "on a path forward to ensure that America does not default on its debt for the first time."
Republicans have refused to vote to lift the debt ceiling past its $31.3 trillion limit unless Biden and his Democrats agree to spending cuts in the federal budget.
Negotiators are racing to beat a deadline of June 1, when the Treasury Department has said the U.S. could begin defaulting on its debts for the first time in history and risk a financial catastrophe.
The revised itinerary of Biden’s upcoming trip showed the urgency of the talks. The president – who flies to Japan on Wednesday for a G-7 summit – scrapped subsequent stops in Papua New Guinea and Australia, instead returning to Washington on Sunday.
In Sydney, Biden was meant to meet the leaders of Japan, India and Australia as part of a "Quad" grouping widely seen as a counter to China.
Australian Prime Minister Anthony Albanese said Quad talks would instead take place in Japan.
The Treasury has warned of grim consequences if the country runs out of cash to pay its bills, which would leave it unable to pay federal workers and trigger a likely surge in interest rates with knock-on effects for businesses, mortgages – and global markets.
"It is essential that Congress act as soon as possible," Treasury Secretary Janet Yellen said Tuesday in remarks before the Independent Community Bankers of America. "In my assessment – and that of economists across the board – a U.S. default would generate an economic and financial catastrophe."
'Potentially devastating'
The White House said Biden had directed his staff "to continue to meet daily on outstanding issues," and that he would confer with Republican leaders on his return from the G-7 meetings.
Republicans have continued to insist Biden agree to significant spending cuts in exchange for their support, ignoring Democratic calls for a "clean" increase of the borrowing limit with no strings attached.
Democrats have accused Republicans of using extreme tactics to push their agenda ahead of the so-called "X-date" at which the United States starts defaulting on its debts.
Compounding the pressure on Washington to strike a deal, Yellen said Monday that estimates are unchanged on the possible "X-date."
In a sign of growing nervousness, over 140 top U.S. chief executives sent a letter to Biden and congressional leaders stressing the need for an agreement.
"We strongly urge that an accord be reached quickly so that the country can avert this potentially devastating scenario," the letter signed by the CEOs from Pfizer and Morgan Stanley, among others, said.
Breaking the stalemate
Republicans, who regained control of the House in the 2022 midterm elections, are using their newfound clout to demand cuts of $130 billion from federal agencies and programs in exchange for support for lifting the debt ceiling.
This would limit spending in the 2024 fiscal year to 2022 levels.
They also want to expedite domestic energy production projects, simplify obtaining permits for pipelines and refineries and claw back unspent COVID-19 relief funding.
Some senators have acknowledged that they may have to cancel the Memorial Day recess beginning Thursday to get a deal finalized.
As the X-date draws closer, Democrats in Congress have begun considering a range of alternatives, including using an arcane congressional procedure to bypass McCarthy.
They've also contemplated asking Biden to invoke the 14th Amendment to raise the debt ceiling unilaterally, which some legal scholars believe would allow the Treasury to simply ignore the debt limit.
But Biden has cautioned that such a move could be challenged in court and has continued to call publicly for Republicans to support a clean increase to the debt ceiling.