Debt-ceiling negotiators broke off talks and then resumed them late Friday, as the White House and House Republicans worked to quickly reach a deal to raise the limit and avert a government default as soon as next month.
Negotiators said the breakdown in talks centered around how deeply to cut the government budget, with House Speaker Kevin McCarthy (R., Calif.) saying Friday that spending levels were a major sticking point as Republicans pressed for deeper reductions than Democrats appeared poised to accept. Republicans have ruled out any tax increases as a way of reducing federal deficits.
"We've got to get movement by the White House and we don't have the movement yet so, yeah, we're in a pause," McCarthy told reporters. "We can't be spending more money next year. We have to spend less than we spent the year before. It's pretty easy."
The White House said in a statement that "there are real differences between the parties on budget issues, and talks will be difficult. The president's team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate."
But talks resumed late Friday. A White House official said talks were back on and the negotiators were meeting on Capitol Hill on Friday evening.
The initial setback in talks tempered a weeklong selloff in U.S. Treasurys, with rebounding expectations for economic growth and inflation driving bond yields to new two-month highs. The yield on the benchmark 10-year U.S. Treasury note settled at 3.690% Friday -- its highest close since March 10, the day that Silicon Valley Bank was seized by the government following a run by depositors. Yields rise when bond prices fall.
The Dow Jones Industrial Average fell 109.28 points, or 0.3%, while the S&P 500 and Nasdaq Composite finished slightly lower. All three major indexes finished the week in the green.
The break came one day after the White House and McCarthy had expressed optimism that a deal could be reached soon, after both sides narrowed negotiations between McCarthy and Biden to a handful of key aides and allies. McCarthy said he hadn't spoken Friday with President Biden, who is at the Group of Seven summit in Hiroshima, Japan.
Negotiators are facing a short deadline. The Treasury Department has said that the U.S. could become unable to pay its bills on time as soon as June 1 unless Congress acts. Negotiations have focused on capping spending, revoking unused Covid-19 aid, streamlining permitting for energy projects and changing work requirements for some benefit programs.
Rep. Patrick McHenry (R., N.C.), who was involved in the talks had earlier characterized the breakdown in talks as putting negotiations "at a very bad moment."
White House adviser Steve Ricchetti, one of Biden's negotiators, had said as he left a meeting Friday that both sides were "playing by ear" when asked whether there would be more talks.
A bill passed by the GOP-controlled House in April that Republicans see as the starting point in negotiations proposed raising the nation's $31.4 trillion borrowing limit in exchange for deep cuts in government spending. The bill would return the government's discretionary spending to fiscal 2022 levels in fiscal 2024 and then cap annual spending growth at 1% over roughly a decade.
Notably, McCarthy in his Friday comments didn't specify returning discretionary spending to fiscal 2022 levels, which would represent about a $130 billion cut from 2023 outlays. Instead, he said that spending had to be less than the current level, which is $1.65 trillion, suggesting that the opportunity for a deal may lie in reaching agreement on a smaller cut.
In the negotiations, the White House has signaled its openness to a deal that caps future spending for two years, though the specifics of such a proposal are unclear. Some Republicans have pushed for a 10-year spending caps deal.
The White House has argued for weeks that rolling back spending to 2022 levels would require cuts as deep as 30% to many government programs if spending on the military and veterans are protected, as GOP lawmakers have promised.
People briefed on the negotiations said the two sides were struggling to make progress on the core issues that have been at the center of the talks for weeks, and both Republicans and White House officials expressed frustration that an agreement hadn't been reached.
Some of the people expressed optimism that the negotiators could come back to the table over the weekend, but both sides were evaluating next steps on Friday.
Both Republicans and Democrats have acknowledged that any deal to raise the debt ceiling will include some conditions, after the White House effectively gave up on its insistence that the debt-ceiling increase be "clean." But the conservative and progressive wings of the Republican and Democratic caucuses have signaled opposition to parts of the emerging talks, putting pressure on leadership when it comes time to corral votes.
On Thursday, the House Freedom Caucus, a group of about three dozen, far-right lawmakers who frequently oppose government spending bills, took a position that negotiations should stop until the Senate passed the April debt-ceiling bill.
At the same time, progressive lawmakers on the far left of the Democratic Party are pushing Biden to use the 14th Amendment to the Constitution to raise the debt ceiling without Congress, as a way to avoid negotiating with Republicans. Progressives have loudly opposed strengthening work requirements for programs that help poor Americans.
"We cannot reach a budget agreement that increases the suffering of millions of Americans," a group of 11 senators wrote, adding it is "seemingly impossible to enact a bipartisan budget deal at this time."
The 14th Amendment states that federal debt authorized by law "shall not be questioned." Biden has said he was considering invoking the amendment as a way to keep paying the nation's bills if Congress didn't raise the debt limit. But he added the issue would be subject to litigation and might not be a solution in the current standoff, and administration officials have played down the possibility.
The Congressional Black Caucus has also taken a position opposing new work requirements in any final debt-ceiling bill.
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