May 24, 2023 Latest on debt ceiling negotiations

House Progressive Caucus Chair Pramila Jayapal said Wednesday that the White House told her that House Republicans have rejected $3 trillion worth of policies that would have gone toward deficit reduction throughout the debt ceiling negotiations process.

The policies proposed by the White House that House GOP has rejected:

Progressives called on their Republican colleagues to join them in signing a discharge petition to raise a clean debt ceiling. Asked by CNN if any Republicans seem willing to cross party lines and buck House GOP leadership, Jayapal said, “There is going to be a moment here, and it’s coming very, very soon” where Republicans are going to have to make a choice. 

Jayapal also called on President Biden to use the 14th amendment if House GOP continues to refuse to sign onto any revenue-raising policies or onto a discharge petition. 

Negotiators were spotted leaving the Eisenhower Executive Office Building on Wednesday afternoon as House Republicans and the White House work to come to an agreement on the debt ceiling.

White House negotiators Steve Ricchetti and Louisia Terrell and House GOP negotiator Rep. Patrick McHenry were in the group.

They assembled at noon Wednesday to continue discussions on the debt limit, CNN’s Arlette Saenz reported earlier today.

US stocks fell on Wednesday, with the Dow ending the day down by around 250 points as Wall Street appeared to be waking up to the growing possibility of a default.

There are just four trading days left until Janet Yellen’s June 1 “hard deadline" for the United States to raise the debt ceiling or risk defaulting on its obligations.

Treasury yields, meanwhile, moved higher across the curve Wednesday as worries of a default grew.

Minutes from the Federal Reserve’s May policymaking meeting, released Wednesday afternoon, did little to buoy investors’ outlooks.

The meeting notes showed that central bank policymakers were divided at their last meeting as to whether or not another rate hike was needed to slow the economy and cool inflation. Officials also expressed worries about the United States defaulting on its debt, and Fed economists also reaffirmed their forecast of a mild recession later in the year.

Treasury Secretary Janet Yellen said Wednesday that she will try to be more precise about when the nation could start missing payments in her next advisory to Congress.

But she repeated that it’s tough to pinpoint the X-date, when the nation may not be able to satisfy all its bills, even a few weeks in advance because of the inherent uncertainty of incoming revenue and outgoing obligations.

In her letter to Congress on Monday, she said 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.”

She stressed on Wednesday that if negotiations between the White House and House Republicans fail to produce a deal in time, “there will be some difficult choices to make.”

“Treasury and President Biden will face very tough choices if Congress doesn't act to raise the debt ceiling,” Yellen said. “And if we hit the so-called X-date without that occurring, there will be some obligations that we will be unable to pay.” 

The secretary declined to detail exactly what Treasury can do in terms of payments, but said that “as a general matter, prioritization is not really something that's operationally feasible.”

“Our payment systems have been constructed in order to pay our bills, not to decide which bills to pay and which bills not to pay,” she said.

Treasury has sent a memo to federal agencies asking if they can delay making certain payments to conserve cash, a source familiar with the matter told CNN. The Washington Post first reported on the memo.

Some House Republicans, however, don’t think that the true deadline is on June 1. They argue that Yellen should be more “transparent” about her forecasts.

“It looks like they're hedging now and opening up the door to move that date back,” House Majority Leader Steve Scalise said Tuesday.

Multiple analyses have estimated that the X-date will probably occur in early June, but not necessarily June 1. The Bipartisan Policy Center on Tuesday projected that Treasury will most likely lack the cash to meet all of its obligations sometime between early June and early August, with an “elevated risk” between June 2 and June 13.

If Treasury can continue paying the bills into the middle of next month, then it’s likely the government won’t default until later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from $145 billion in an “extraordinary measure” that becomes available at the end of that month.

CNN’s Alayna Treene and Kristin Wilson contributed to this report.

White House negotiators are “absolutely empowered” to negotiate on behalf of President Joe Biden in the debt limit discussions, press secretary Karine Jean-Pierre said Wednesday, pushing back against reports that the negotiators have been hamstrung by the White House.

“They’re absolutely empowered – this is a team that the president selected himself, these are long-term advisers, long-time advisers, I should say, to the president,” Jean-Pierre said.

Pressed in a follow-up question by CNN’s Phil Mattingly, Jean-Pierre declined to weigh in on what the White House thinks of lead House GOP negotiators Patrick McHenry and Garret Graves.

Discussions between lead negotiators are still underway at the Eisenhower Executive Office Building, Jean-Pierre added.

Even though time is running out to get a debt ceiling deal through Congress, one of the key players that will decide the fate of America’s credit rating is convinced disaster will be averted.

Even though there are just eight days to go before the government could run out of cash, Foster said Moody’s is confident the federal government will not suffer a first-ever default.

“If we were less confident, we would change our outlook to negative,” Foster said.

The coming days and weeks could test that confidence.

House Republicans and the White House are, so far, struggling to find a compromise on how to raise the debt ceiling. Cash levels at the US Treasury are dwindling and the accounting gimmicks officials are using to avoid default won’t last much longer.

Wall Street is even starting to wake up to the debt ceiling dangers ahead, with the stock market finally buckling a bit following days of calm.

Asked why he is confident the United States won’t default, Foster pointed to historical precedent, adding, “There has never been a default.”

The Moody’s executive also referenced comments from Republican and Democrat leaders alike about the importance of America paying its bills.

However, given the tight timetable between now and the June 1 deadline set by the Treasury Department, Moody’s isn’t ruling out the idea that the federal government could be forced to delay payments on other items beyond payments to bondholders.

A potential US default was a big concern for Federal Reserve officials when they voted to raise interest rates earlier this month, according to minutes from that meeting released on Wednesday.

Officials raised the central bank's benchmark lending rate by a quarter point to 5-5.25% in the first week of May. Among the many developments officials discussed, the economic fallout of a US default was one of them, including how the central bank would respond.

The clock is ticking down to a US default, but it’s not entirely clear when the US will officially run out of cash. It’s also not clear what a potential deal to avert a first-ever default will look like.

The day the US government will run out of cash is actually a moving target.

The US actually exceeded its borrowing authority back in January, but Treasury Secretary Janet Yellen authorized “extraordinary measures” – essentially moving money around – to give lawmakers time to act.

She has said those extraordinary measures will be exhausted as soon as June 1, but third-party estimates suggest it could end up taking weeks or even months longer.

The government takes in and spends money every day. It also takes cash from public debt it has sold to cover expenses.

The Treasury Department publishes a daily balance sheet. Last Thursday it showed an operating cash balance of $57 billion, including billions in deposits – everything from income taxes and Medicare premiums to the foreign military sales program – and $205 billion in cash from debt.

CNN’s Tami Luhby writes that if the US can limp to the middle of June, an expected infusion of estimated tax payments could forestall the so-called X date until later in the summer. Treasury officials might not even know until a day or two before the X date occurs.

You can read more about the US debt drama here.

President Joe Biden and House Republicans have a short amount of time to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.

Treasury Secretary Janet Yellen has warned the government may not be able to pay all of its bills in full and on time as soon as June 1.

Here are just three ways that Americans could be affected by debt default:

Social Security payments: Payments to about 66 million retirees, disabled workers and others receive monthly Social Security benefits could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.

Other government payments could also be affected, including funding for food stamps; federal grants to states and municipalities for Medicaid, highways, education and other programs.

Federal employees and veterans benefits: More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.

Also, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected.

The economy: A debt default could trigger an economic downturn, which would prompt a spike in unemployment. It would come at a particularly fragile time — when the nation is already dealing with rising interest rates and stubbornly high inflation.

How much damage would be done would depend on how long the crisis continues. If the default lasts for about a week, then close to 1 million jobs would be lost, including in the financial sector, which would be hard hit by the stock market declines. Also, the unemployment rate would jump to about 5% and the economy would contract by nearly half a percent, according to Moody’s.

“It would be a body blow to the economy, and it would be a manufactured crisis,” said Bernard Yaros, an economist at Moody’s.