Deal on US debt ceiling nears as Biden and McCarthy collaborate

President Joe Biden and top congressional Republican Kevin McCarthy expressed their determination on Wednesday to promptly reach an agreement to raise the federal government's debt ceiling, currently standing at $31.4 trillion. This urgency stems from the need to prevent a potentially disastrous default that could have severe economic consequences.

After months of deadlock, President Biden and Speaker of the House of Representatives, McCarthy, have agreed to engage in direct negotiations to resolve the issue. The objective is to reach a mutually acceptable agreement that must be approved by both houses of Congress before the government's funds are depleted, which could happen as early as June 1st.

During a press briefing at the White House, President Biden emphasized the critical nature of the negotiations, stating, "We will come together because we have no other choice." He further announced his decision to cut short his trip to Asia and return to Washington on Sunday to personally engage in the discussions. Meanwhile, staff-level discussions will continue in Washington.

President Biden made it clear that the negotiation primarily concerns the budget framework and is not about questioning the nation's commitment to honour its debts. He reiterated that all congressional leaders have reached a consensus: avoiding default is of utmost importance and will be ensured.

Republicans, currently holding a majority in the House with a slim margin of 222-213, have consistently pushed for spending reductions as a prerequisite for raising the self-imposed debt limit of Congress. This limit needs to be regularly increased as the government's expenditures exceed its tax revenue.

Responding to inquiries at the Capitol, McCarthy expressed cautious optimism about reaching a debt ceiling agreement by the time President Biden returns from Asia, stating, "It's doable." He conveyed his determination, saying, "Despite the tight timeline, we won't give up. I possess the resilience and perseverance to accomplish this."

The ongoing discussions have transitioned to a streamlined two-way dialogue, simplifying the prior five-way format involving the three other congressional leaders. Meanwhile, President Biden has departed for the Group of Seven summit in Hiroshima, Japan, scheduled from Friday to Sunday.

Financial markets have shown positive reactions to these discussions, with U.S. stocks recording gains on Wednesday, reflecting cautious optimism among investors as negotiations continue.

The U.S. Treasury has warned that funds could potentially be exhausted as early as June 1st, which could trigger a recession. Therefore, the negotiators are aiming to finalize an agreement before President Biden's scheduled return on Sunday, leaving Congress with limited time to act before the deadline.

McCarthy clarified that any agreement reached would first be voted upon in the House before being sent to the Senate, where Democrats maintain a narrow majority of 51-49. Approval of any deal in the Senate would require the support of at least nine Republicans, as per Senate rules.

Negotiations are also underway regarding the duration of the agreement, work requirements for aid programs such as food subsidies, and spending limits. Work requirement discussions primarily revolve around programs like the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families program. However, President Biden has previously voiced his opposition to work requirements impacting the Medicaid health insurance program for low-income individuals.

While McCarthy defended conservative calls for work requirements in a CNBC interview, highlighting their potential positive impact on the economy and workforce, he pledged to exclude discussions on taxes from the negotiations.

President Biden's proposed 2024 budget involves raising taxes on the wealthy and companies to fund programs benefiting other Americans. On Tuesday, President Biden expressed his disappointment that Republicans are unwilling to consider revenue-raising options.

House Democrat Hakeem Jeffries expressed hope for a bipartisan agreement. However, as a contingency plan, he intends to file a "discharge petition" if necessary, bypassing regular chamber procedures to address the debt limit and avoid default.