Biden says debt deal ‘very close’ and default deadline now set for June 5

More late “Date X”, set out in a letter from Treasury Secretary Janet Yellen, set the risk of a devastating default four days higher than previously estimated. It came as Americans and the rest of the world watched anxiously as the talks teetered on the brink of negotiations that could throw the U.S. economy into chaos and undermine the world’s confidence in the country’s leadership.

Still, Biden was upbeat as he left for the Memorial Day weekend at Camp David, saying, “It’s very close and I’m optimistic.”

Speaking to Republicans on Capitol Hill with Biden’s White House team, the president said: “Negotiations are underway. I hope that by the evening we will know whether we will be able to reach an agreement.”

In a direct warning, Yellen said failure to act by the new date “would cause severe hardship for American families, damage our global leadership position and raise questions about our ability to protect our national security interests.”

Alarmed retirees and others were already making plans in case of missed checks and the following Social security payments next week.

Biden and Republican House Speaker Kevin McCarthy appeared to be narrowing a deal on two years of budget cuts that would also extend the debt limit until 2025 after the next presidential election. After frustrating rounds of closed-door talks on Friday, a compromise appeared to be on the way.

Republicans have made some progress in their push for drastic spending cuts, which Democrats oppose. However, the parties are particularly divided over McCarthy’s demands to strengthen work requirements for government food stamp recipients, who Democrats say are not starting to work.

Earlier on Friday, McCarthy announced that he had become a Republican debt negotiators and the White House entered a “crusading” time, straining to reach an agreement. He left late Friday night without comment.

Any deal would have to be a political compromise with support from both Democrats and Republicans to pass a divided Congress. Failure to lift the current $31 trillion borrowing limit to pay the government’s bills would send shockwaves through the American and global economy.

But many of the hard-right Republicans in Congress who support Trump have long been skeptical of the Treasury Department’s projections, and they are pressing McCarthy to stand firm.

When the talks went late into the night, one of the participants in the negotiations, Rep. Patrick McHenry, RN.C., called Biden’s comments “an encouraging sign.” But he also warned that there are still “missing points” that stand in the way of a final deal.

While the outlines of a deal are taking shape on spending cuts for 2024 and a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions.

A person familiar with the talks said the two sides were “debating” whether to agree to Republican demands for tougher action job requirements on people who receive government food stamps, cash assistance, and health care assistance.

House Democrats called such demands for health care and food assistance inappropriate.

Asked if Republicans would budge on the jobs demands, Republican Rep. Garrett Graves of Louisiana fumed: “Hell no chance.”

House Republicans showed risky political bravado by leaving town for the holiday. Lawmakers are tentatively expected to return to work by Tuesday, but their return date is currently uncertain.

“The world is watching,” said the managing director of the International Monetary Fund, Kristalina Georgieva, after meeting with Yelen on Friday. “Let’s remember we’re in the 12th hour now.”

Weeks of negotiations between Republicans and the White House failed to produce a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that the nation’s full faith and credit should not be used as leverage to obtain other party priorities.

“We have to spend less than we spent last year. That’s the starting point,” McCarthy said.

One idea is to set base budget numbers, but then add a “recovery” provision to carry out the cuts if Congress fails to meet new targets through the annual appropriations process.

On work requirements for welfare recipients, the White House is particularly resistant to measures that could push more people into poverty or rob them of their health, said a person familiar with the talks, who spoke on condition of anonymity to describe the closed-door discussions.

As for the Republican demand to eliminate money for the Internal Revenue Service, it is still “an open question” whether the parties will compromise by allowing funding to go to other domestic programs, the person said.

According to another person familiar with the talks, Republicans may relax their demand to raise defense spending beyond what Biden proposed in his budget, instead of offering to keep it at the levels he proposed.

The teams are also considering a proposal by Sen. John Hickenlooper, R-Cal., to incentivize the development of transmission lines to facilitate the construction of an interregional power grid.

They are almost certain to return some of it $30 billion in unused funds for COVID-19 now when pandemic emergency was officially cancelled.

Meanwhile, McCarthy is under pressure from the right wing of the House not to budge on any deal, even if it means missing the Treasury term.

McCarthy said Donald Trump, the former president who is running for office again, told him, “Make sure you get a good deal.”

However, vigilant Democrats are also putting pressure on Biden. The three top Democratic leaders in the House of Representatives, led by Representative Hakeem Jeffries, spoke Thursday night with the White House.

McCarthy promised lawmakers he would abide by the rule of posting any bill 72 hours before a vote. The Democratic-held Senate has vowed to quickly send the package to Biden’s desk before a possible deadline next Thursday.

Meanwhile, the Fitch Ratings rating agency assigned the USA credit at the AAA level “view ratings are negative,” warning of a possible downgrade.

The White House continues to argue that the deficit can be reduced by eliminating tax breaks for wealthy households and some corporations, but McCarthy said he told the president as early as their meeting in February that raising revenue through tax increases was not a consideration.

While Biden ruled out citing the 14th Amendment to raise the debt limit on their own, House Democrats have announced that they have all signed up to a legislative “winddown” process that would force a vote on the debt ceiling. But they need five Republicans to split their party and give the majority the go-ahead to develop a plan.

Associated Press writers Mary Claire Jalonik, Steven Groves, Farnoosh Amiri and video journalist Rick Gentillo contributed to this report.