FILE - U.S. Treasury Secretary Janet Yellen takes questions from journalists during a press conference, at the G7 meeting of Finance Ministers and Central Bank Governors, at Toki Messe in Niigata, Japan, Thursday, May 11, 2023. (AP Photo/Shuji Kajiyama, Pool, File)
House Speaker Kevin McCarthy said Friday negotiators "made progress” on an agreement with the White House to raise the debt limit as they race to close out a deal ahead of a looming deadline to avert a potentially catastrophic default. McCarthy told reporters at the Capitol that there is sti…
WASHINGTON (AP) — Treasury Secretary Janet Yellen said Friday the projected debt ceiling deadline is extended to June 5, four days later than previously estimated.
Yet, Yellen renewed her warning in a letter to Congress that inaction on raising the borrowing limit would "cause severe hardship."
Yellen's latest letter to legislators on the "X-date" came as Congress broke for the long Memorial Day weekend. She said that the Treasury Department had deployed an extraordinary measure not used since 2015 to get the U.S. financial position to this point.
The X-date arrives when the government no longer has enough of a financial cushion to pay all its bills, having exhausted the measures it's been using since January to stretch existing funds.
Earlier Friday, House Speaker Kevin McCarthy said his Republican debt negotiators and the White House had hit "crunch" time, straining to wrap up an agreement with President Joe Biden to curb federal spending and lift the nation's borrowing limit ahead of the fast-coming deadline.
They had hoped to end weeks of frustrating talks and strike a deal by this weekend. Treasury now says the government could start running out of money as soon as a week from Monday, sending the U.S. into a potentially catastrophic default with economic spillover around the world.
Anxious retirees and social service groups were among those making default contingency plans as lawmakers left town for the long holiday weekend. The next batch of Social Security checks are due to go out next week.
"The world is watching," said International Monetary Fund Managing Director Kristalina Georgieva after meeting Friday with Yellen. "Let's remember we are now in the 12th hour."
Democrat Biden and the Republican speaker were narrowing differences, laboring to lock in details on a two-year agreement that would restrain federal spending and lift the legal borrowing limit past next year's presidential election.
Any deal would need to be a political compromise, with support from both Democrats and Republicans to pass the divided Congress.
"We know it's a crunch," McCarthy said as he arrived at the emptied out Capitol, acknowledging more progress needed to be made.
In remarks at the White House honoring the Louisiana State University champion women's basketball team, Biden gave a shoutout to one of this top negotiators saying she's "putting together a deal, hopefully."
He was referring to Office of Management and Budget Director Shalanda Young who attended the event as did Rep. Garret Graves of Louisiana, a top Republican negotiator.
While the contours of the deal have been taking shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions. The debt ceiling, now at $31 trillion, would be lifted for two years to pay the nation's incurred bills.
A person familiar with the talks said the two sides were "dug in" on whether or not to agree to Republican demands to impose stiffer work requirements on people who receive government food stamps, cash assistance and health care aid.
House Democrats have called such requirements for health care and food aid a nonstarter.
Asked if Republicans would relent on work requirements Graves, fumed: "Hell no, not a chance."
House Republicans have pushed the issue to the brink, displaying risky political bravado in leaving town for the Memorial Day holiday. Lawmakers are tentatively not expected back at work until Tuesday, just two days from the June 1 "X-date" when Treasury Secretary Yellen has said the U.S. could face default.
Biden will also be away this weekend, departing Friday for the presidential retreat at Camp David, Maryland, and Sunday for his home in Wilmington, Delaware. The Senate is on recess and will return after Memorial Day.
"Each time there is forward progress, the issues that remain become more difficult and more challenging," said negotiator Rep. Patrick McHenry, R-N.C., at midday Friday.
Weeks of negotiations between Republicans and the White House have failed to produce a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that the country's full faith and credit should not be used as leverage to extract other partisan priorities.
"We have to spend less than we spent last year. That is the starting point," said McCarthy.
One idea is to set the topline budget numbers but then add a "snap-back" provision to enforce cuts if Congress is unable during its annual appropriations process to meet the new goals.
On work requirements for aid recipients, the White House is particularly resisting measures that could drive more people into poverty or take their health care, said the person familiar with the talks, who was granted anonymity to describe behind-closed-door discussions.
Over the Republican demand to rescind money for the Internal Revenue Service, it's still an "open issue" whether the sides will compromise by allowing the funding to be pushed into other domestic programs, the person said.
In one potential development, Republicans may be easing their demand to boost defense spending beyond what Biden had proposed in his budget, instead offering to keep it at his proposed levels, according to another person familiar with the talks.
The teams are also eyeing a proposal to boost energy transmission line development from Sen. John Hickenlooper, D-Colo., to facilitate the buildout of an interregional power grid.
Meanwhile, McCarthy is feeling pressure from the House's right flank not to give in to any deal, even if it means blowing past the June 1 deadline.
"Let's hold the line," said Rep. Chip Roy, R-Texas, a Freedom Caucus member.
McCarthy said Donald Trump, the former president who is again running for office, told him, "Make sure you get a good agreement."
Watchful Democrats, though, are also pressing Biden. The top three House Democratic leaders led by Rep. Hakeem Jeffries spoke late Thursday with the White House.
Even if negotiators strike a deal in coming days, McCarthy has promised lawmakers he will abide by the rule to post any bill for 72 hours before voting — now likely Tuesday or even Wednesday. The Democratic-held Senate has vowed to move quickly to send the package to Biden's desk, right before next Thursday's possible deadline.
Meanwhile, Fitch Ratings agency placed the United States' AAA credit on "ratings watch negative," warning of a possible downgrade.
The White House has continued to argue that deficits can be reduced by ending tax breaks for wealthier households and some corporations, but McCarthy said he told the president as early as their February meeting that raising revenue from tax hikes was off the table.
While Biden has ruled out, for now, invoking the 14th Amendment to raise the debt limit on his own, Democrats in the House announced they have all signed on to a legislative "discharge" process that would force a debt ceiling vote. But they need five Republicans to break with their party and tip the majority to set the plan forward.
They are all but certain to claw back some $30 billion in unspent COVID-19 funds now that the pandemic emergency has officially been lifted.
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