Debt ceiling talks stall amid pushback from Kevin McCarthy’s right flank
The rollercoaster debt ceiling talks are back at a stalemate amid a full-throated effort by the most conservative members of Kevin McCarthy’s caucus to preemptively kill any bipartisan deal.
Influential Rep. Chip Roy (R-Texas) told a right-wing host Tuesday night that “my position is to hold the damn line” and force a GOP-only plan into law, one of the many similar comments from Republicans in recent hours.
“I don’t even care about the negotiations going on at the White House,” he added.
The GOP's internal dynamics are having a direct effect on the talks. House Speaker Kevin McCarthy abruptly shifted his tone Tuesday just hours after optimistic comments in the Oval Office.
Late Tuesday night, a lead negotiator for McCarthy told reporters that his side needed to see “fundamental change” from the White House.
Then, on Wednesday, Speaker McCarthy announced that talks would resume and said "I think we can make progress today" while also batting away suggestions that a deal is impossible at this point given the conservative Republican criticisms.
The conservative rebellion is a mirror of sorts to what President Biden is confronting on his left flank, with many Democratic lawmakers similarly skeptical of concessions.
The unrest on both fringes is raising new questions not just if a deal can be struck — but whether it could then even pass Congress in time to avoid a potential default on June 1.
Treasury Secretary Janet Yellen on Wednesday underlined how negotiators can ill afford further delays, saying that it seems almost certain the US government will not be able to pay its bills past early June.
"Early June seems almost certain that we will not be able to get past early June and I do intend to provide an update pretty soon,” Yellen said in a virtual conversation at the Wall Street Journal’s CEO Council in London. “We no longer see very much likelihood there are resources will enable us to get to the middle or end of June.”
Yellen says there are early signs of stress in financial markets already, pointing to much higher yields on Treasury bills coming due in early to mid June.
Yellen added, however, that she thinks a deal is possible.
“They’re working toward an agreement that could command bipartisan support,” she said.
For now, many in the business world are still planning for compromise. CFRA Research Chief Investment Strategist Sam Stovall told Yahoo Finance Tuesday “most people on Wall Street think that cooler minds will prevail.”
But he added a warning: “Should the worst happen, history then tells us, watch out because we could enter into a new bear market.”
The outsized power of the House Freedom Caucus
The conservative distaste surfacing online and in person reflects the official position of the powerful House Freedom Caucus.
The group said last week that McCarthy should refuse to negotiate and force the Senate to simply pass a sprawling GOP proposal that rolls back large pieces of Biden’s accomplishments.
“There should be no further discussion until the Senate passes the legislation,” the group of over 40 lawmakers said in a statement.
Republicans must #HoldTheLine on the debt ceiling to bring spending back to reality and restore fiscal sanity in DC.
We spend $100+ billion more than federal tax revenues EVERY MONTH.
Washington has a spending problem, not a revenue problem.— House Freedom Caucus (@freedomcaucus) May 22, 2023
The proposal is a wish list of Republican priorities on issues like the IRS and energy policy that is seen as having no chance of even being considered in the Democratic-controlled Senate.
But the group has an outsized influence on Capitol Hill — and a direct line to McCarthy's office — after its members took their time supporting the California Congressman's bid for Speaker in January.
In his interview with conservative host Jesse Kelly, Rep. Roy said right-wing strength has been “a result of the efforts in January.” Roy was a key player in that drama which stretched for 15 ballots. Roy eventually supported McCarthy on the 12th ballot but in the process secured a role for himself on the powerful House Rules committee.
In the end, McCarthy agreed to a series of deep concessions in exchange for Freedom Caucus votes, notably a restrictive rules package that allows just one lawmaker to force a full vote on ousting the speaker.
The topic that these Republicans have not broached so far - publicly at least - is whether they would be willing to use their power to try and remove McCarthy from power if it came to that.
“Nobody’s talking about that,” Freedom Caucus member Rep. Bob Good (R-Va.) told MSNBC recently. "We want him to be successful because the country needs for him to be successful."
“Literally nobody except the press is talking about removing McCarthy right now,” added Rep. Matt Gaetz (R-Fla.) on Twitter.
Neither Gaetz nor Good ever voted for McCarthy in January, but did vote “present” on the final ballots to help push him over the line.
Also in a memo to House colleagues Wednesday, Roy underlined McCarthy and the House Freedom Caucus remain strong allies, saying the hardline position from the group is intended help McCarthy in negotiations to "give him the strongest hand."
Skepticism of the June 1 deadline
Another key way that hard-line House conservatives could shape the debate in the days ahead is over the question of whether a deal actually needs to be done by a deadline of June 1, which Treasury Secretary Janet Yellen reiterated this week in a letter.
“She’s using June 1st [but] everybody knows that’s false.” Rep. Ralph Norman (R-S.C.) told CNN Tuesday, echoing many similar comments on that topic.
The commentary reflects far-right skepticism of anything a Biden official has to say.
But the comments also reflect a point being echoed by more moderate Republicans as well as Wall Street analysts. They argue the economic damage around a default could theoretically be limited for a few days if the Treasury Department is able to pick and choose which payments to make.
For now, negotiations remain focused in on the key issue of spending caps as a linchpin toward a potential bipartisan deal.
Negotiations are at a standoff over whether to roll back an increase of about $130 billion in government spending from FY2022 to FY2023 that was approved by Congress late last year.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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