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Biden-McCarthy debt talk ends with optimism, but without a deal

Biden-McCarthy debt talk ends with optimism, but without a deal
Kevin McCarthy and Joe Biden on May 22. (Photo: Yuri Gripas / Abaca / Bloomberg)

(Bloomberg) --  President Joe Biden and House Speaker Kevin McCarthy remained without a deal on the debt limit Monday night after another round of talks, though they called their discussions productive and vowed to keep negotiating to avert a catastrophic US default. 

The two met at the White House for more than an hour Monday evening in Washington. Earlier, Treasury Secretary Janet Yellen that warned it’s “highly likely” her department would run out of  sufficient cash in early June and that default could come as soon as June 1.

“The tone tonight was better than any other time we have had discussions,” McCarthy told reporters as he emerged from his meeting with the president. The two leaders, he said, “had a productive discussion. We don’t have an agreement yet.”

Biden, in a statement on Monday night, agreed that the session had been “productive.”

“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,” he said.

White House negotiators returned to the Capitol on Monday night.

McCarthy said he expected to speak daily with Biden until a deal is sealed. The leaders’ hand-picked negotiating teams will continue talks Monday night.

“We’re going to let the teams work tonight and see if we get progress,” McCarthy said.

US equity futures edged higher after McCarthy spoke about the tone of the talks, while their Treasury equivalents were little changed.

After the meeting, McCarthy stressed that Republicans wouldn’t agree to any tax changes as part of a debt agreement.

“No, we’re not looking at revenues,” he said.

The current standoff over the debt ceiling has the potential to put more strain on the US economy, which is already vulnerable to a recession after a series of interest-rate increases by the Federal Reserve, according to Bloomberg Economics.

US INSIGHT: Cost of Debt Deal – Spending Cuts May Cost 570k Jobs

Republicans want to slash domestic spending over as many years as possible, while Democrats have offered slimmer cuts over a couple of years. Democrats also want to include defense spending limits in any agreement.

That sets up a key tension for hawkish Republicans, who want to increase the Pentagon budget at the expense of deeper cutbacks in social spending. McCarthy said defense cuts shouldn’t be on the table.

The California Republican said he would not waive a rule that allows House lawmakers 72 hours to review legislation before a vote. Conservatives have demanded the time but it adds to the pressure to get an agreement.

Rohit Kumar, Senate Republican Leader Mitch McConnell’s chief negotiator in the 2011 debt-limit crisis and now a principal in PwC’s Washington office, said the signals from the leaders coming out of the White House meeting are “a good sign for getting a deal” and that he sees a “more than 50-50” chance of an agreement emerging in the next couple days.

Even if it takes a little longer to complete, a default is unlikely after an agreement, he said.

“Once the deal is struck, Congress always finds a way to get it done by the deadline, and if they can’t get it done by the deadline, they extend the deadline,” Kumar added.

–With assistance from Erik Wasson, Jarrell Dillard, Steven T. Dennis and Anna Edgerton.

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