May 25, 2023 Latest on debt ceiling negotiations

House Speaker Kevin McCarthy said negotiators worked late into the night and are inching closer to a potential debt ceiling deal.  

"We worked well past midnight last night and yesterday ... was a very good day. I thought we made some progress. There's still some outstanding issues, and I've directed our teams to work 24/7 to try to solve this problem," McCarthy told reporters Thursday morning on Capitol Hill.

In a separate interview on Fox News also this morning, while McCarthy still expressed positivity about the negotiations, he said, “I don’t know if we will have a deal today.” 

“This deal won't solve all the problems. The president took a lot of things off the table,” he said, insisting that his conference is “very united in this process.”

On the Hill, he reaffirmed that he believes the June 1 deadline is a real deadline, despite some allegations from conservatives that Treasury Secretary Janet Yellen is playing games with it. 

Meanwhile, in the Fox interview, McCarthy brushed off that it would be an economic catastrophe if the date passes without a deal, saying “look, we know there's money coming in. We know there's ability to get things done.” 

“Whoever the Treasury Secretary is, whatever they say the date is, I will take. But there's money that comes in every single day. You get to the 15th, a lot of money comes in,” he said.

McCarthy would not tell reporters about specific areas where there is agreement in negotiations, but CNN has reported that the two sides have agreed on recapturing unspent Covid-19 funds. Pushed by CNN on whether Democrats have agreed to spending less money next year, McCarthy wouldn't get into details but said if there is going to be a deal, they'll have to agree to that. 

McCarthy was pressed on what impact the Fitch credit ratings agency's warning has had on the negotiations and if it makes him nervous about getting a deal sooner. McCarthy reiterated that is why he met with Biden and asked repeatedly to get back together. 

"If you wait 97 days not to negotiate, you must never be concerned about that," he said of threat of downgrade. 

Asked about the timeline for when this must be done, McCarthy said, "every hour matters." 

"That's why we worked well past midnight last night. The team they have is very professional, very bright. They know where the differences are and we're gonna work 24/7," he reiterated.

Republican negotiator Rep. Garret Graves said that there’s still more to do on differences over spending, and he does not have plans to go to the White House today but spoke with them this morning. 

“Still have a good bit to do, the speaker’s made it clear that this is a top priority,” he said.

He added that he has “been in touch with the White House this morning, going to keep talking to them, and obviously objective is to get this closed as quickly as possible.”

When asked by CNN if he plans to go back to the White House today, he said, “not right now.”

A deadlocked Washington that has taken America to the brink of default could jeopardize the United States’ perfect credit rating, Fitch said in a stern warning Wednesday.

The credit ratings agency placed top-ranked US credit on rating watch negative, reflecting the uncertainty surrounding the current debt ceiling debate and the possibility of a first-ever default.

The move comes as as Republican and Democratic politicians negotiate to raise the US debt limit, though no deal has yet been reached. With Treasury Secretary Janet Yellen saying the US may be unable to pay its bills as soon as June 1, the country faces the possibility of an unprecedented default, which could have disastrous effects both in the United States and all over the world.

Fitch, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative,” signaling that it could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit. 

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” the company said in a statement. 

However, Fitch added that it still believed lawmakers would pass a resolution before the “X-date.”

The White House on Wednesday pointed to Fitch Ratings’ move as cause for urgency on raising the debt ceiling.

“This is one more piece of evidence that default is not an option and all responsible lawmakers understand that. It reinforces the need for Congress to quickly pass a reasonable, bipartisan agreement to prevent default,” a White House spokesperson said in a statement.

The Treasury Department on Wednesday night also emphasized that, and said a potential downgrade shows why Congress must immediately address the debt ceiling.

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There are just four trading days left until the United States hits its “X” day — the ominous-sounding hard deadline for the government to raise the debt ceiling or risk defaulting on its obligations, according to the US Treasury. Investors are starting to squirm. 

It’s not like this took Wall Street by surprise. The US government hit its self-imposed debt ceiling back in January, forcing the Treasury to start taking extraordinary measures to keep the government paying its bills and escalating pressure on Capitol Hill to avoid a catastrophic default. Treasury Secretary Janet Yellen has been warning of a June 1 deadline for nearly a month.

US markets have largely shrugged off talk of a default. All three major indexes climbed higher last week. And analyst notes discussing the topic have been heavily caveated that there’s a near-zero chance of an actual default. “A debt ceiling deal is a certainty and every market actor knows it,” wrote David Bahnsen, chief investment officer of The Bahnsen Group on Wednesday.

But markets have experienced a vibe shift in the last 24-48 hours. The Dow plummeted more than 250 points Wednesday as investors were appeared to wake up to the reality that for the first time in US history, the government could renege on its bills. Treasury yields, which move in the opposite direction to prices, were higher as worries of a default grew.

What’s happening: Negotiations between President Joe Biden and Republican House Speaker Kevin McCarthy are hitting snags and time is running out. 

House Republicans are insisting on spending cuts before they will agree to raise the nation’s debt ceiling past $31 trillion. Democrats argue that Congress already spent the money and must be allowed to repay America’s debt holders without an embarrassing and economically disastrous default.

Fitch — one of the top three credit rating agencies along with Moody’s and S&P — signaled on Wednesday evening that it could downgrade the United States’ perfect rating if lawmakers do not agree to raise the debt limit.

The warning is “just the latest sign that policy brinkmanship over the debt ceiling is extracting a growing price on the US economy and placing in jeopardy well-functioning financial markets that are critical to the health of the American real economy,” said Joseph Brusuelas, chief economist at RSM LLC. 

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House Speaker Kevin McCarthy appears set to send members home after votes on Thursday, signaling that debt negotiations with the White House will continue as the risk of a first-ever default grows.

While the speaker urged lawmakers to stay close to the nation’s capital over Memorial Day weekend, his top deputy, House Majority Leader Steve Scalise, announced that the House will recess following votes on Thursday as negotiators continue to work on a debt ceiling deal.

“Following tomorrow’s votes, if some new agreement is reached between President Biden and Speaker McCarthy, members will receive 24 hours notice in the event we need to return to Washington for any additional votes, either over the weekend or next week,” he said.

Negotiators are trying to make progress on a handful of outstanding issues – in addition to cutting federal spending, which remains a major sticking point. Two sources familiar with the matter said the White House is weighing the GOP demands in exchange for winning the lone concession offered by McCarthy: raising the debt limit.

The two sides have agreed to rescind some Covid-19 relief aid, an issue first proposed by House Republicans, according to multiple sources.

Hours of meetings on Wednesday moved negotiations in a positive direction, McCarthy told reporters, but each day that passes without a bipartisan deal to raise the debt ceiling brings the nation closer to default – which could be catastrophic for the global economy and have financial effects on countless Americans.

Warning signs are beginning to pop up: Fitch Ratings placed the top-ranked US sovereign credit rating on rating watch negative Wednesday, reflecting the uncertainty surrounding the current debt ceiling debate and the possibility of a first-ever default. The agency, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative,” signaling that it could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit.

Read more about where things stand here.

The prospects for enacting a debt limit hike by June 1 are grim, senior Republican sources tell CNN, even as negotiators signal they’re starting to make progress on a deal. 

As of Wednesday evening, the two sides had yet to reach an agreement on key sticking points, sources said. Even if they do, they’ll still need at least a day to turn it into bill text and then another 72 hours to give members time to read the bill before a floor vote in the House. Then it still needs to go through the Senate, where any single senator can hold things up.

That timeline makes it exceedingly unlikely that they can get a bill to President Biden’s desk by June 1 — the date the Treasury Department previously has said the country could default. Still, a number of Republicans have expressed doubt that next Thursday is the hard deadline.

That reality has started to set in among lawmakers, with the House Majority Leader’s office informing members on Wednesday that they can return home for the Memorial Day weekend after votes tomorrow, although they’ll be given 24 hours' notice if they need to return. 

GOP leaders continue to insist a short-term patch is off the table. Regardless, that option would also require some time to get through both chambers.

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.

Americans who are already trying to navigate persistently high inflation, soaring interest rates, banking turmoil and recession fears are now faced with trying to prepare for the “unthinkable:” a potential US debt default.

Earlier this month, Kimberly Dickerson called up her creditors, asking about contingency plans in the event that her Social Security Disability check doesn’t land in June.

“The only way I can say it is, it’s going to be catastrophic,” said Dickerson, 52, of Richmond, Virginia.

Debt ceiling negotiations are continuing on Capitol Hill as a deadline of default looms larger by the day. Average Americans are taking notice and trying their best to protect themselves and their livelihoods.

A cross-section of Americans told CNN they’re becoming increasingly worried not only about the threat of the US defaulting on some or all of its financial responsibilities but also the effects of any spending cuts made in negotiations.

Teri House of Kansas met with a financial adviser about whether she could bear the cost if her elderly mother’s federal assistance is interrupted, putting the Navy veteran’s established memory care services at risk.

Meanwhile, just outside Detroit, veteran Christopher Land is nervous too. He said his family would immediately feel the impacts of a failed debt ceiling negotiation, and he’s concerned about what it would mean for his fellow residents in need.

“Our retirement savings were wiped out by medical debts years ago,” said Land, 41, whose wife is disabled. “A default could be really bad for us. I’m employed by a city government. We are on public assistance. We have loans. We’re living on the right side of the paycheck-to-paycheck line, but not by a lot.”

In Tucson, Arizona, Alejandro Terrazas fears he may lose a chunk of his retirement savings and rainy day funds if the impasse continues.

“I’m getting up there in years, but I’m not ready to retire probably for 10 more years, and if it’s some temporary thing, I won’t make any moves,” said Terrazas, 60. “But most of my money in retirement is in the stock market, except for the house I own.”

Read what other Americans are saying.