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US debt ceiling deadline to be extended

The ‘X-date’ arrives when the government no longer has enough of a financial cushion to pay all its bills.

Debt Limit
Debt Limit

US Treasury Secretary Janet Yellen has said the projected debt ceiling deadline is extended to June 5, four days later than previously estimated.

Ms Yellen renewed her warning in a letter to Congress that inaction on raising the borrowing limit would “cause severe hardship”.

Ms Yellen’s latest letter to legislators on the “X-date” came as Congress broke for the long Memorial Day weekend.

She said that the Treasury Department had deployed an extraordinary measure not used since 2015 to get the US financial position to this point.

Debt Limit
Speaker of the House Kevin McCarthy talks to reporters about the debt limit negotiations as he arrives at the Capitol in Washington (J Scott Applewhite/AP/PA)

The X-date arrives when the government no longer has enough of a financial cushion to pay all its bills, having exhausted the measures it has been using since January to stretch existing funds.

Earlier on Friday, House Speaker Kevin McCarthy said his Republican debt negotiators and the White House had hit “crunch” time, straining to wrap up an agreement with President Joe Biden to curb federal spending and lift the nation’s borrowing limit ahead of the fast-approaching deadline.

They had hoped to end weeks of frustrating talks and strike a deal by this weekend.

The Treasury now says the government could start running out of money as soon as a week on Monday, sending the US into a potentially catastrophic default with economic spillover around the world.

Anxious pensioners and social service groups were among those making default contingency plans as politicians left town for the long holiday weekend. The next batch of social security payments are due to go out next week.

“The world is watching,” said International Monetary Fund managing director Kristalina Georgieva after meeting on Friday with Ms Yellen. “Let’s remember we are now in the 12th hour.”

Democrat Mr Biden and the Republican speaker were narrowing differences, labouring to lock in details on a two-year agreement that would restrain federal spending and lift the legal borrowing limit past next year’s presidential election.

Any deal would need to be a political compromise, with support from both Democrats and Republicans to pass the divided Congress.

“We know it’s a crunch,” Mr McCarthy said as he arrived at the Capitol, acknowledging more progress needed to be made.

APTOPIX Congess Debt Limit
House Speaker Kevin McCarthy speaks to reporters about debt limit negotiations on Capitol Hill in Washington (Jacquelyn Martin/AP/PA)

While the contours of the deal have been taking shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions. The debt ceiling, now at 31 trillion dollars (£25.1 trillion), would be lifted for two years to pay the nation’s incurred bills.

A person familiar with the talks said the two sides were “dug in” on whether or not to agree to Republican demands to impose stiffer work requirements on people who receive government food stamps, cash assistance and healthcare aid.

House Democrats have called such requirements for healthcare and food aid a nonstarter.

Politicians are tentatively not expected back at work until Tuesday, just two days from the June 1 “X-date” when Treasury Secretary Yellen has said the US could face default.

Mr Biden will also be away this weekend, departing on Friday for the presidential retreat at Camp David, Maryland, and Sunday for his home in Wilmington, Delaware. The Senate is on recess and will return after Memorial Day.

“Each time there is forward progress, the issues that remain become more difficult and more challenging,” said negotiator Rep Patrick McHenry on Friday.

Weeks of negotiations between Republicans and the White House have failed to produce a deal — in part because the Biden administration resisted negotiating with Mr McCarthy over the debt limit, arguing that the country’s full faith and credit should not be used as leverage to extract other partisan priorities.

“We have to spend less than we spent last year. That is the starting point,” said Mr McCarthy.

One idea is to set the topline budget numbers but then add a “snap-back” provision to enforce cuts if Congress is unable during its annual appropriations process to meet the new goals.

On work requirements for aid recipients, the White House is particularly resisting measures that could drive more people into poverty or take their healthcare, said the person familiar with the talks, who was granted anonymity to describe behind-closed-door discussions.

Over the Republican demand to rescind money for the Internal Revenue Service, it is still an “open issue” whether the sides will compromise by allowing the funding to be pushed into other domestic programmes, the person said.

In one potential development, Republicans may be easing their demand to boost defence spending beyond what Mr Biden had proposed in his budget, instead offering to keep it at his proposed levels, according to another person familiar with the talks.

Mr McCarthy said Donald Trump, the former president who is again running for office, told him, “Make sure you get a good agreement”.

Even if negotiators strike a deal in coming days, Mr McCarthy has promised he will abide by the rule to post any Bill for 72 hours before voting — now likely Tuesday or even Wednesday.

The Democratic-held Senate has vowed to move quickly to send the package to Mr Biden’s desk, right before next Thursday’s possible deadline.

Meanwhile, Fitch Ratings agency placed the United States’ AAA credit on “ratings watch negative,” warning of a possible downgrade.

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