Debt ceiling talks continue as McCarthy warns big gaps remain on some issues

Republican negotiators will return to the White House to “try to finish negotiations” on the debt ceiling, Kevin McCarthy said Wednesday morning, although he warned that the two sides are “still far apart” on a number of issues.

The speaker’s comments to reporters on Capitol Hill came just over a week before the crucial June 1 deadline. US Treasury Secretary Janet Yellen has repeatedly warned lawmakers that if Congress does not raise the debt ceiling within days, there is a risk that the federal government will default in early June, but also on June 1.

Yellen reiterated her forecast on Wednesday morning. Speaking at an event for The Wall Street Journal, he said that the uncertainty surrounding the debt ceiling is already “causing some tension in the financial markets,” adding that the Treasury notes due in early to mid-June “will be traded at the next date.” . . significantly higher rates”.

Investors are avoiding bonds maturing at the beginning of June, which has drastically reduced the price of these securities. In early May, the Treasury Department was forced to auction four-week bonds at the highest yields ever to lure buyers.

The stress is not limited to the debt market. Stock markets fell this week, with the blue chip S&P 500 and the tech-heavy Nasdaq Composite both down nearly 2 percent.

“I think this should serve as a reminder of the importance of getting a deal done in time,” Yellen said, warning that there could be “significant financial market disruption” even before a deal is reached.

McCarthy sat down with Joe Biden on Monday for talks the two leaders described as “productive” after the US president cut short an overseas trip to the G7 meetings to be in Washington for debt ceiling talks.

But the apparent stalemate in the days since has raised concerns in Washington and financial markets about whether the two sides can reach a deal in time to avoid an unprecedented default that economists say would wreak havoc on the global economy.

The deal between the White House and congressional Republicans must be approved by a majority in both the House of Representatives, which Republicans hold by a narrow margin, and the Senate, which is similarly held by Democrats. Both Biden and McCarthy are under increasing pressure from the left and right of their parties to reject calls for compromise.

McCarthy, however, insisted Wednesday that a deal would be reached and that he could push it through the lower house of Congress.

“I think we can move forward today. I hope we can move forward.”

White House press secretary Karine Jean-Pierre told reporters Wednesday that a deal is still possible. “We think there’s still an opportunity here for a reasonable bipartisan deal that Republicans and Democrats in the House and Senate can move forward with,” he said during a meeting of negotiators Wednesday afternoon.

The most hawkish members of McCarthy’s conference brushed aside fears of default and suggested that the Treasury could simply prioritize debt payments.

But Yellen rejected those claims on Wednesday: “We designed our payment systems to pay our bills, not to decide which bills to pay and which not to.

“It is a general point that the determination of priorities is not really feasible operationally. So there will be some tough decisions to make.”

In a new Brookings report, senior fellow Wendy Edelberg warned that market stress will continue to increase as the debt ceiling drags on.

With the Treasury market as the safest haven in the global financial system, the U.S. government has benefited from lower borrowing costs than other countries, which Edelberg estimates will save more than $750 billion in interest over the next decade.

“If some of this benefit is lost due to binding the debt limit, the cost to taxpayers could be significant,” he wrote with colleague Noadia Steinmetz-Silber.

They noted that premiums on debt maturing in June have already increased, and if this were eventually extended to all maturities, the interest costs of financing the federal debt could increase by more than $4 billion.