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Debt ceiling: Biden and McCarthy strike optimistic tone on latest talks

President Joe Biden and House Speaker Kevin McCarthy gathered Monday evening for one-on-one negotiations and offered strikingly optimistic takes on where things stand even as plenty of issues remain unresolved.

“We still have some disagreements but I think we may be able to get where we have to go,” said Biden before the meeting began.

After the meeting wrapped up a little over an hour later, McCarthy told reporters it had been a "productive discussion" that he said was better than any other meeting so far even as the two sides remain short of a deal.

McCarthy announced that staff meetings would continue to try and work out the remaining issues in the days ahead, with McCarthy saying he expects to talk with Biden every day "until we get this done."

He also offered this note of caution: "There's nothing agreed to, everything's being talked about.”

US President Joe Biden meets with US House Speaker Kevin McCarthy (R-CA) (L) about the debt ceiling, in the Oval Office of the White House in Washington, DC, on May 22, 2023. US President Joe Biden said he was 'optimistic' as he met Monday with top Republican Kevin McCarthy for their first one-on-one talks in months, with just 10 days left to stop a calamitous debt default. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
House Speaker Kevin McCarthy and President Joe Biden meet about the debt ceiling in the Oval Office on May 22. (SAUL LOEB/AFP via Getty Images) (SAUL LOEB via Getty Images)

Monday’s meeting coincided with a new warning from the Treasury Secretary that it could be just days until the US may not be able to pay all its bills.

Janet Yellen wrote in a new letter released Monday that it is “highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.”

Markets were watching Monday's talks closely, with leading figures underlining the deep costs of default. “A lot’s on the line with each passing day,” Moody’s Analytics Chief Economist Mark Zandi told Yahoo Finance.

A new analysis from JP Morgan found that stocks could have a sharp downward reaction if the talks appear go off course in the days ahead.

Step to go to avoid default

Even if a deal is announced in the coming days, there would be many steps to go before a default can be averted. Biden said Monday that task number one is “we’ve got to get something we can sell to both sides.”

Approval from both chambers of Congress has been further complicated in recent days by growing discontent from both the left and right.

Among Republicans, conservatives in the powerful House Freedom Caucus are reportedly huddling Monday night after they recently called for “no further discussion” to force Biden to simply accept a sprawling GOP proposal which has no support from Democrats.

Meanwhile, some lawmakers on the left are saying they might not support deep compromises with Republicans and are casting about for long-shot ideas to short-circuit negotiations, from a maneuver called a discharge petition to the legally-questionable option around the 14th amendment.

A key remaining issue

During Monday’s remarks, one key sticking point that came up repeatedly was around the question of raising revenue.

Biden and his team have repeatedly pitched closing certain tax loopholes - especially provisions around the fossil fuel and cryptocurrency sectors - with Republicans rejecting the ideas each time.

“Revenue matters,” Biden said Monday, with McCarthy quickly responding that he thinks Americans are already overtaxed.

The sides also continue to negotiate on spending levels, with a GOP proposal passed in April aiming to cut discretionary spending to 2022 levels and then impose a 1% cap on future increases. Democrats have been negotiating around the issue but pushing for smaller cuts.

The negotiators still have plenty of other issues to work out in the days ahead across things like possible new work requirements that the GOP is proposing around social programs, energy permitting reform, and efforts to "claw back" unspent COVID relief money.

But for now Tuesday’s optimistic tone is likely to hearten optimism in the business community that has been strongly urging both both sides to avoid default at all costs. On Monday, Biden said “we both know we have a significant responsibility.”

For his part, Zandi laid out the stakes of failure, saying Monday that “if we breach, I think we go into a recession because the economy is already very fragile.”

Ben Werschkul is Washington correspondent for Yahoo Finance.

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