President Joe Biden and top Republicans and Democrats from Congress are set to sit down this week to try to resolve a three-month standoff over the $31.4 trillion US debt ceiling and avoid a crippling default before the end of May.
The Democratic president is calling on lawmakers to raise the federal government's self-imposed borrowing limit without conditions. Republican House of Representatives Speaker Kevin McCarthy has said his chamber will not approve any deal that does not cut spending to address a growing budget deficit.
Biden is due to meet on Tuesday at the White House with McCarthy for the first time since Feb. 1, with Senate Majority Leader Chuck Schumer and top Senate Republican Mitch McConnell. Top House Democrat Hakeem Jeffries will also join the talks.
Analysts do not expect an immediate deal to avert a historic default, which the Treasury Department has warned could come as soon as June 1. Forecasters warn a default would likely send the US economy into deep recession with soaring unemployment.
But the start of active talks could soothe the nerves of investors who last week forced the federal government to pay its highest interest ever for a one-month debt issue.
"We have a lot of frothy waters now. We need to calm them. Some of that could come just from saying, 'We've found areas of agreement, we've found areas of disagreement, we're going to get back together and work on a solution,'" Republican Senator Thom Tillis told reporters late last week.
Outside observers including people who have participated in past fiscal negotiations and business lobby groups have laid out a range of potential compromises largely revolving around extending the debt ceiling past the November 2024 presidential elections while freezing spending.
Legislative standoffs are nothing new in a nation with deep partisan divides, where Republicans hold a thin House of Representatives majority and Biden's Democrats control the Senate by a scant two votes.
But the stakes of the debt-ceiling standoff are far higher than debates about budgeting that have caused partial shutdowns over the federal government three times in the past decade.
"That is painful. It is difficult. But it is not catastrophic," Democratic Senator Chris Coons said, referring to past shutdowns, adding, "default would be catastrophic."
Biden has insisted for months that raising the debt ceiling, a move needed to cover the costs of spending and tax cuts already approved by Congress, should not be linked to budget talks.
"The two are totally unrelated," Biden said on Friday. "They're two separate issues, two. Let's get it straight."
Reuters