House Speaker Kevin McCarthy’s top debt-ceiling negotiators walked out of negotiations Friday morning, an abrupt reversal from optimistic signals on progress from both sides a day earlier.
(Bloomberg) — House Speaker Kevin McCarthy’s top debt-ceiling negotiators walked out of negotiations Friday morning, an abrupt reversal from optimistic signals on progress from both sides a day earlier.
The Republican team’s departure from the closed-door session about an hour after it began Friday morning threw into doubt the status of talks to avoid a US default. One person familiar with the talks said it wasn’t a specific issue but ranged broadly across GOP budget-cutting demands.
“Look, they’re just unreasonable,” Republican Representative Garret Graves said, adding that the talks were on a “pause.” Graves’ comments come a day after McCarthy said he could see a deal coming together with a House vote next week.
McCarthy, who was not present at the meeting, returned the Capitol shortly after and reiterated his support for spending cuts.
“I mean yesterday, I really felt we were at the location where I could see the path,” McCarthy said. “We can’t be spending more money next year. we have to spend less than we spent the year before. It’s pretty easy.”
There was not a dramatic flare-up in the room before negotiators decided to take a pause, according to another person familiar with the negotiations. White House aides told Republicans that just as there were proposals that the House speaker had explained would prompt too many members of his party to defect – like raising additional revenues through closing tax loopholes – there were policies that the GOP side was pursuing that would lead to mass Democratic defections.
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Graves said he did not know if the negotiators would meet again Friday or over the weekend. A White House official acknowledged differences between the two parties and said talks will be difficult but said a deal is still possible.
Stocks slumped on the news, which countered any lift they might otherwise have received from remarks from Federal Reserve Chair Jerome Powell. The Fed chief said at a Friday event that policymakers might not need to raise interest rates as high, thanks to tightening credit conditions. The S&P 500 was down 0.4% as of 11:41 a.m., after being up 0.4% earlier.
“Unless they are willing to have reasonable conversations about how you can actually move forward and do the right thing, we’re not going to sit here and talk to ourselves,” Graves said, as House Financial Services Committee Chairman Patrick McHenry stood near him.
Past debt-limit showdowns have featured similar breaks in negotiations, and some observers were anticipating such a development in the current battle. Tobin Marcus at Evercore ISI wrote to clients on Thursday saying, “We caution investors not to overestimate how quick or smooth the path to the finish line will be.”
McCarthy’s comments Thursday were his most positive take yet on the negotiations to avoid a default, which Treasury Secretary Janet Yellen has signaled could become a risk as soon as June 1. But hard-liners in both parties quickly opposed the emerging deal.
The conservative House Freedom Caucus on Thursday called for an end to bipartisan debt-limit talks, insisting instead that the Senate vote on the House Republican bill passed in April with sharp spending cuts across the board. Progressive Democrats mounted a fervent opposing potential concessions to Republicans, including expanded work requirements be applied to food, stamps, welfare and Medicaid.
Senate Republican Leader Mitch McConnell meanwhile tweeted that it is “past time for the White House to get serious. Time is of the essence.”
Market participants have warned of a surge in borrowing costs and blow to equities in the event of any default, with reverberations to the global economy that could rival the 2008 crash.
Republicans have been pressing for sweeping spending cuts, along with regulatory changes that Democrats have opposed. The months-long impasse between the two sides since the Treasury hit the debt limit in January has prompted increasing warnings from economists of a damaging recession if the brinkmanship continues to escalate.
–With assistance from Jennifer Jacobs and Alex Tanzi.
(Updates with White House reaction, other context)
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