New uncertainty on multiple fronts is clouding the path to a debt-ceiling deal as President Joe Biden prepares to sit down with Speaker Kevin McCarthy and other congressional leaders Tuesday afternoon.
McCarthy offered multiple dour assessments Monday of where things stand. He said both sides remained far apart and then doubled down later in the day: “I don’t think we’re in a good place.”
Treasury Secretary Janet Yellen reiterated in a new letter Monday night that the government could no longer be able to satisfy all of its obligations as soon as June 1. She also warned in a speech Tuesday morning that "it is very conceivable that we’d see a number of financial markets break" if no deal is struck.
Today's meeting is the first gathering of the leaders since conversations among aides made tentative progress on issues like permitting reform and work requirements for social programs.
All sides agree there is a long ways to go and an unforgiving calendar in the weeks ahead between a planned Biden trip to Asia and Australia that is scheduled to begin tomorrow as well as Congressional recesses set for coming weeks.
“I think there are a couple of areas that there’s an opening to an agreement,” said Stifel Chief Washington Policy Strategist Brian Gardner in a Yahoo Finance Live appearance Monday. But he added that a deal is far from assured and the possibility of failure “is not priced into equity markets.”
McCarthy says an agreement needs to be struck by as soon as this weekend in order to pass Congress in time. “We only have so many days left in session to deal with this,“ he said Monday night.
Tuesday’s 3 pm ET meeting is set to again take place in the Oval Office and feature Biden and McCarthy as well as Senate Majority Leader Chuck Schumer (D-NY), Senate Minority Leader Mitch McConnell (R-KY) and House Minority Leader Hakeem Jeffries (D-NY).
Uncertainty over the X-date
Yet another ingredient adding to the uncertainty is a debate over when the government is likely to default on its debt. While Yellen has repeatedly focused negotiators on a June 1 deadline, she also again noted in Monday's letter that it could be a number of weeks later than that before the government actually runs out of cash.
Other recent outside investigations into the issue have given even wider timelines. Analysts from the Bipartisan Policy Report last week said default is possible between early June and early August. The Congressional Budget Office likewise finds significant risk in early June but also a scenario where the government stays afloat until “at least the end of July.”
“The debt ceiling outlook remains stubbornly indeterminate,” is how the analysts at Wrightson ICAP - another group that watches things closely - put things Monday.
The uncertainty is a result of a host of factors. One is an important June 15 deadline when taxpayers will pay their second installment of estimated taxes for 2023. There is also volatility in the US tax system overall, with capital gains revenue coming in well below expectations in recent months. Another factor is California, which has offered a tax extension to many of its citizens in the wake of recent severe weather.
Shai Akabas, the Bipartisan Policy Center's director of economic policy, said last week that the California delay as well as lower revenues was a key reason why “this early June timeframe [for possible default ] is now more of a risk than we foresaw back in February before these events took place."
Tuesday’s high stakes meeting
The last time Biden and McCarthy met face to face, that meeting ended with few signs of progress and personal acrimony spilling over into public view. Biden said the meeting was sometimes tense and claimed McCarthy occasionally made “over the top” assertions.
In the days since, staff-level talks have produced tangible signs of progress, less drama, and positive comments from President Biden.
“I really think there’s a desire on their part, as well as ours, to reach an agreement, and I think we'll be able to do it,” he said Sunday.
Those developments have led some observers to hope that the shape of a deal could form around some compromise on spending cuts and other provisions like clawing back COVID money and side priorities like energy-permitting reform.
But that progress has yet to be echoed publicly by both McCarthy and Biden, raising the stakes for comments they are expected to deliver expected after Tuesday's meeting.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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