(Bloomberg) -- White House and Republican negotiators tentatively narrowed differences but were still clashing Friday on key issues as the Treasury Department signaled extra time was available before a potential US default.
Treasury Secretary Janet Yellen announced the department expects to be able to make payments on US debts up until June 5 if lawmakers fail to act on the US debt ceiling. That set a more pointed date for a potential default but is also four days later than her previous comments eyeing trouble as soon as June 1.
The new so-called X-date buys negotiators for House Speaker Kevin McCarthy and President Joe Biden more time to strike a deal. The negotiating teams haven’t met in person since Wednesday but spoke late into the night Thursday and were in regular communication throughout the day Friday.
Speaking as he left the White House Friday night for Camp David, Biden said he’s “very optimistic” about the prospects for a deal. “I’m hopeful we’ll know by tonight.”
Representative Patrick McHenry, one of the Republican negotiators, said the June 5 date means it’s still urgent that the two sides reach a deal. “We now have a solid date,” he said.
The negotiating teams continued to work into early Saturday morning to iron out text for an agreement.
New work requirements for social programs such as food stamps and Medicaid health coverage have been pushed by Republicans and rejected by the White House.
“Hell no! Hell no! Not a chance,” Representative Garret Graves, another GOP negotiator, said when asked whether House Republicans would drop demands for more work requirements. “This is not happening.”
The White House shot back Friday night. “President Biden and House Democrats are standing against this cruel and senseless tradeoff,” White House spokesperson Andrew Bates said.
McCarthy has signaled over the last several days that a deal is slowly coming together. The two sides have narrowed differences in talks over recent days, people familiar with the discussions said, though the details agreed to are tentative and a final accord is still not in hand.
The emerging deal, which is not yet finalized, would raise the debt limit and cap federal spending for two years, according to people familiar with the matter. Also, defense spending would be permitted to rise 3% next year in line with Biden’s budget request.
The benchmark S&P 500 stock index was up 1.3% Friday as traders weighed the reports of an emerging deal against strong economic data pointing toward another Federal Reserve interest-rate increase. Yields on Treasury bills maturing in early June tumbled, a sign investors are regaining confidence in on-time repayment during the window when a US default would be likely without a deal.
Deputy Treasury Secretary Wally Adeyemo warned Friday that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.
“We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”
The accord would also include a measure to upgrade the nation’s electric grid to accommodate renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.
The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act. Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.
What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.
--With assistance from Erik Wasson, Akayla Gardner, Jennifer Jacobs and Steven T. Dennis.
(Updates with negotiations continuing, in sixth paragraph.)
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