May 26 (UPI) — Treasury Secretary Janet Yellen sent a letter to Congress on Friday, saying that the government will now have until June 5 before it runs out of money to pay its bills rather than the June 1 deadline she had announced.
“Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Yellen said, according to ABC News.
That allows congressional leaders a few more days to negotiate with the White House.
Congressional leaders were expected to vote early as Tuesday on increasing the debt limit as negotiators seemed to move closer to a deal just days before the so-called X date, when the government runs out of money.
House Speaker Kevin McCarthy, R-Calif., briefed reporters shortly before noon Friday on the ongoing negotiations with White House officials over raising the debt ceiling.
Should a deal emerge, the House could vote after leaders return from the long weekend on Tuesday, with the Senate following suit on Wednesday, said Edward Moya, a senior market analyst at New York brokerage OANDA.
On the South Lawn of the White House before his departure on Marine One to Camp David, President Joe Biden said “things are looking very good” with debt limit negotiations.
“I hope we’ll have some clear evidence tonight before the clock strikes twelve that we have a deal,” Biden said. “But it’s very close, and I’m optimistic.”
Democrats, who hold a narrow majority in the Senate, wanted a clean debt ceiling increase without preconditions, while Republicans, in control of the House, proposed a $1.5 trillion debt limit hike with federal spending cuts of approximately $4.8 trillion over the next decade.
“We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy,” McCarthy was quoted by The New York Times as saying late Thursday. “It takes a while to make it happen, and we are working hard to make it happen.”
Markets were in the black at the close on Friday amid optimism of a breakthrough in negotiations. The Dow Jones industrial average was up 1% and the tech-heavy NASDAQ was up 2.18%.
The sentiment was similar this time last week, but no deal emerged, however.
The potential deal would see a cap on discretionary spending for the next two years, far below the GOP’s initial proposal, though defense spending would be spared from any deep cuts.
The $80 billion allocated last year by Congress to the Internal Revenue Service to crack down on high wage earners and tax evaders could be scaled down to around $10 billion as part of a comprehensive debt package.
Both Fitch and the ratings division of Morningstar put the U.S. credit rating on notice this week given concerns about the ability of the U.S. government to settle its debts.
Any missed payment would be considered a default, which could have dire ramifications on the global economy given the importance of the U.S. dollar and the influence of U.S. trade.
“Even if Congress ends up increasing the debt ceiling prior to the X-date, the prospect of repeated debt ceiling standoffs in a polarized political environment may lead DBRS Morningstar to judge that U.S. credit risk has increased to a level that is no longer consistent with a AAA rating,” it said.
Extreme partisanship was on full display during debt negotiations.
Republicans in three separate cases during the Trump administration raised the ceiling without preconditions, while Vermont’s independent Sen. Bernie Sanders said this week that the White House should go it alone by invoking the 14th amendment to the Constitution, which allows the United States to “continue to pay its bills on time and without delay.”
Moya at OANDA said there are still some “red lines,” such as work requirements for those receive support from programs such as Medicaid.
“This will be a long weekend for negotiations, but time is running out as once a deal is outlined, 72 hours is required for lawmakers to review the text,” he said.