US Treasury Looks To Push Out Payment Dates As McCarthy, Biden Take Debt Ceiling Down To The Wire

A successful deal continues to elude the White House and Congress in debt ceiling negotiations as the country steers closer and closer to an unprecedented government default.

President Joe Biden and House Speaker Kevin McCarthy left their latest meeting Monday without reaching common ground to raise the borrowing limit to finance the U.S. government. 

Both parties voiced their intention to reach a deal before the deadline of June 1, as the consequences of running out of cash would likely trigger an economic catastrophe.

What Biden, McCarthy Are Saying: McCarthy said in a Monday evening press conference that both sides are "on the same page." Biden called the meeting "productive" and said a "default is off the table and the only way to move forward is in good faith toward a bipartisan agreement.”

Both parties are using the pressure imposed by the looming deadline to leverage their positions with regards to government spending. Republicans are pushing to reduce government spending in the 2024 budget, while Democrats are looking to finance a higher debt limit by raising taxes on the wealthiest and closing tax loopholes for oil and pharmaceutical companies.

Any deal needs to be approved by both chambers of Congress, pushing the main parties to reach an agreement this week in order for the deal to become effective before the early June deadline, said McCarthy.

Related Link: Debt Ceiling Crisis: Here Are Assets Investors Will Watch Closely As Market Braces For Volatility

As Treasury assets begin to show extreme signs of volatility the further the deal gets delayed, Treasury Department Secretary Janet Yellen issued new signs of warning in a Monday letter to lawmakers, dissipating speculation around the flexibility of the early June deadline.

The Treasury is already scavenging for ways to increase its budgetary wiggle room. On Tuesday, The Washington Post reported the Treasury Department is already asking federal agencies if they can make upcoming payments later than previously arranged.

A memo from the Treasury has also been circulated among federal agencies asking for tighter reporting on spending and requesting the agency be notified of all large payments several days in advance. According to a Treasury spokesperson, this measure is being taken to be able to "produce an accurate forecast around the debt limit."

A big chunk of quarterly tax payments are coming into the Treasury's coffers on June 15, and some independent analysts, including Marc Goldwein from the Washington-based think tank Committee for a Responsible Federal Budget, have stipulated that if extreme measures are taken, this tax income could help push a default to July.

Yet Yellen's warnings are severe and no member of the government has backed this possibility as a viable alternative.

The Last Word: Extending the deadline is not necessarily the best path. If the possibility of extending the deadline becomes the dominant narrative, it could hamper current efforts to reach a deal by allowing lawmakers to relax their urgency, which would expand ongoing market volatility further into July.

Wall Street credit rating agencies are so far taking Biden and McCarthy at their word. None of the main global credit rating agencies, including Moody’s, Standard & Poor’s and Fitch, has downgraded the U.S. amid the crisis.

The last credit downgrade for the country came from S&P in 2011 amid a similar debt ceiling standoff. The agency took America off the AAA list and into the AA+ list. While S&P is unlikely to further downgrade the country, Moody's and Fitch continues to grade the U.S. as an AAA country and could take it down to AA+ if a deadline is reached and the country effectively defaults on its obligations to creditors.

Read also: What Is The Debt Ceiling — And What Happens If Congress Can’t Raise It In Time?

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