Negotiations on the US debt ceiling are on hold; Negotiators are stuck as the default date nears

WASHINGTON, May 19 (Reuters) – Republicans in the US House of Representatives and the Democratic administration of President Joe Biden on Friday paused talks over a $31.4 trillion hike in the federal government’s debt ceiling, causing financial markets to pause shaken as the deadline to avoid default approached.

Republicans are pushing for drastic spending cuts in return for raising the government’s self-imposed borrowing limit, a move regularly required to cover spending costs and tax cuts previously approved by lawmakers.

Talks at the Capitol broke down around noon and there was no immediate word as to when they would resume. The Treasury Department has warned that the government may not be able to pay all of its bills as soon as June 1st. This would trigger a default that would shake the global economy.

“We’ve got to get movement from the White House, and we haven’t got any movement yet,” House Speaker Kevin McCarthy, the top Republican in Congress, told reporters after his negotiator called off talks with officials in the Biden administration. “We can’t spend more money next year. We have to spend less than last year.”

A White House official said: “There are real differences between the parties on budget issues and talks will be difficult. The President’s team is working hard to come up with a sensible bipartisan solution that can pass the House and Senate.”

US stocks ended the week on a soft note after news of stalled negotiations dashed optimism that an agreement could be reached soon.

Republicans control the House by a margin of 222 to 213, while Biden’s Democrats hold a Senate majority of 51 to 49, making it difficult to push through a deal that finds enough votes to pass both houses.

Democrats are pushing to keep spending at this year’s levels while Republicans want to return to 2022 levels. A plan passed by the House of Representatives last month would cut much of government spending by 8% next year.

This Republican plan does not specify what spending will be cut, but some party officials have said they would shield military and veterans programs. Democrats say it would result in average 22% cuts in domestic programs like education and law enforcement, a figure leading Republicans have not disputed.

Biden is attending a meeting of the Group of Wealthy Seven Nations in Japan, and some Republicans have criticized him for making the trip at a crucial time in the talks.

Biden and McCarthy spent most of the year in an impasse while the White House insisted on a “clean” debt ceiling hike with no strings attached. Republicans said they would only vote for a deal that cuts spending.

They agreed to two-way talks, with the White House represented by Shalanda Young, director of the Office of Management and Budget, and Steve Ricchetti, a senior adviser, while McCarthy was represented by Rep. Garret Graves.

Possible “theatrics”

“It could be for theatrical reasons. It could be about putting more pressure on the Democratic faction and also taking advantage of the fact that Biden is abroad. But that headline on a Friday afternoon is definitely not positive,” Quincy Krosby, LPL Financial’s chief global strategist, said in an interview.

A White House official said an agreement is still possible.

“If both sides negotiate in good faith and realize they are not getting everything they want, an agreement is still possible,” the official said.

“Until people are willing to have difficult conversations about how to actually move forward and do the right thing, we’re not going to sit here and talk,” Graves told reporters as he exited the talks on Friday.

According to reporters from NBC News and ABC News, Young and Ricchetti told reporters they would play it “by ear” as they exited the negotiation sessions. According to a source familiar with the matter, Biden is scheduled to hold a phone call with Shalanda and Richetti around 9 p.m. ET (0100 GMT).

Republicans have taken a hard line. On Thursday, the House Freedom Caucus asked the Senate to vote on a previously passed House bill that would raise the ceiling through March in exchange for ten years of drastic spending cuts.

Democrats in the House and Senate have raised concerns about including new job requirements for some federal benefit programs for low-income Americans in the talks.

The last time the nation came that close to bankruptcy was in 2011, also with a Democratic president and Senate with a Republican-led House of Representatives.

Congress eventually averted the default, but the economy suffered severe shocks, including the first downgrade of the United States’ prime credit rating and a major stock sell-off.

Reporting by Katharine Jackson and Doina Chiacu; Edited by

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