Kevin McCarthy said Wednesday morning that Republican negotiators would return to the White House to “try to finish negotiations” on the debt ceiling, though he warned that the two sides were “still far apart” on a number of issues.
The Speaker’s remarks to reporters on Capitol Hill came with just over a week to go until the crucial June 1 deadline. Janet Yellen, US Treasury Secretary, has repeatedly warned lawmakers that if Congress does not raise the debt ceiling within days, the federal government risks defaulting on its commitments as early as June, and by June 1.
Yellen repeated her predictions on Wednesday morning. Speaking at an event with the Wall Street Journal, she said the uncertainty over the debt ceiling is already causing “some stress in the financial markets,” adding that Treasury bills due in early to mid-June are “trading at . . . much higher rates.”
Investors were avoiding bonds due in early June, which sent the prices of those securities down dramatically. In early May, the Treasury Department had to auction off a four-week note with the highest yield ever to entice buyers.
The pressure is not limited to the debt market. Stocks have fallen this week, with the blue-chip S&P 500 and the heavyweight Nasdaq Composite down nearly 2 percent.
“I think that should be a reminder of the importance of reaching an agreement in a timely manner,” Yellen said, warning that there could be “significant malaise in the financial market” even in the run-up to a final agreement.
McCarthy met Joe Biden on Monday for talks the two leaders described as “productive,” after the US president cut short a foreign trip to G7 meetings to be in Washington for debt ceiling negotiations.
But the apparent impasse in the days that followed has raised concerns in Washington and in financial markets about whether the two sides can reach a deal in time to avert an unprecedented default that economists warn would wreak havoc on the global economy.
Any deal struck between the White House and congressional Republicans would need majority approval in both the House of Representatives – which Republicans control by a narrow margin – and the Senate, which Democrats control by a similarly small amount. Both Biden and McCarthy are under increasing pressure from the left and right sides of their parties, respectively, to reject calls for compromise.
Still, McCarthy insisted on Wednesday that a deal is possible — and that he might be able to run it through the House of Representatives in Congress.
“I think we can make progress today. I hope we can make progress.”
Karen Jean-Pierre, the White House press secretary, told reporters on Wednesday that an agreement was still possible. “We believe there is still an opportunity here to reach a reasonable bipartisan agreement that Republicans and Democrats in the House and Senate can move forward with,” she said, as negotiators met Wednesday afternoon.
The more hawkish members of McCarthy’s conference dismissed concerns about default and suggested that the Treasury could simply prioritize debt repayment.
But Yellen dismissed those claims on Wednesday: “Our payment systems were built in order to pay our bills, not to decide which bills to pay and which bills not to pay.
“In general, setting priorities is not operationally feasible. And so there are going to be some hard choices to be made.”
In a new Brookings Institution report, Wendy Edelberg, a senior fellow, warns of higher costs if market pressures persist as the debt-ceiling standoff continues.
Given the treasury market’s status as the safest haven across the global financial system, the US government has benefited from lower borrowing costs compared to other countries, which Edelberg said translated into interest savings of more than $750 billion over the next decade.
“If part of this benefit is lost by allowing the debt limit to be tied, the cost to the taxpayer could be significant,” she wrote with colleague Nodia Steinmetz-Silber.
They noted that premiums have already risen on debt due in June, and if that eventually extends to all maturities, it could increase interest costs for financing the federal debt by more than $4 trillion.
