Disagreements persist between the two sides regarding budget cuts demanded by Republicans as a condition for raising the debt ceiling. The debt ceiling, a spending limit determined by Congress, determines the government’s borrowing capacity. Failure to raise the ceiling above the current cap of around $31.4 trillion by June could result in a US default on its debt, leading to severe repercussions for the global economy.
President Biden labeled the Republicans’ proposals as “simply unacceptable,” emphasizing the need for them to recognize that a bipartisan agreement cannot be solely based on their partisan terms. However, he expressed a willingness to consider spending cuts to reach a compromise.
Negotiators met at McCarthy’s office on Capitol Hill for a two-and-a-half-hour summit on Sunday night, with discussions set to continue overnight. Treasury Secretary Janet Yellen stressed the importance of a deal before the “hard deadline” of June 1, warning that failure to reach an agreement would lead to an inability to pay all of the country’s bills in early June.
The impasse over the debt ceiling has already had an impact on financial markets, with Friday witnessing a dip in the Dow, S&P 500, and Nasdaq. Republicans are seeking significant budget cuts amounting to $4.5 trillion, which includes scrapping key elements of President Biden’s legislative agenda, while pushing for increased spending on the military and border security.
Both President Biden and McCarthy face pressures from various factions within their parties. With Democrats holding a slim majority in the Senate and Republicans in narrow control of the House, reaching a compromise has proven challenging thus far.