Negotiations on the U.S. debt ceiling hit a stumbling block as Republican negotiators suddenly walked away, causing U.S. stock markets to widen their losses during Friday trading.
The Republican representative for the debt ceiling negotiations, under the leadership of House Speaker Kevin McCarthy, abruptly left a closed-door meeting with White House representatives early Friday morning. Republican Representative Garret Graves stated that negotiations were "on pause," and he was unsure if the negotiating representatives would reconvene later on Friday or over the weekend. "Look, they are just being unreasonable," Graves stated.
Following his departure, McCarthy accused the White House of resisting spending cuts later on Friday. He stated that the level of expenditure was a major sticking point, with Republicans demanding a stricter spending limit than Democrats are willing to concede. "We have to get the White House to act, but there's no action. So yes, we have to pause. Yesterday, I really felt we were on the verge of a breakthrough. Next year, we can't spend more money. We have to spend less than the previous year. It's that simple," McCarthy said.
A White House official acknowledged the differences between the parties and suggested that, while negotiations will be difficult, an agreement could still be reached. In a statement released Friday, the White House said, "There are real disagreements over budget issues, and the negotiations will be tough. President Biden's team is working hard to reach a reasonable bipartisan solution that can pass both the House and the Senate."
A White House aide has told Republicans that as McCarthy explained, some proposals will face too much opposition within the Republican party, such as increasing revenue by closing tax loopholes, and some Republican policies would also be strongly opposed by many Democrats.
The media, citing people familiar with the negotiations, said that there were no dramatic clashes in the room before the negotiators walked out. Another insider revealed that this is not a specific issue, but a broader one involving the Republicans' demands for budget cuts.
At present, the focus of negotiations between the two U.S. parties is on limiting spending, rescinding unused COVID-19 aid, streamlining energy project permits, and altering some welfare program work requirements. Both parties acknowledge that any deal to raise the debt ceiling will come with some attached conditions, a shift from the White House's previous insistence on a clean, unconditional raise of the debt ceiling.
As the date of potential default nears, only two weeks away from the so-called "X date" warned by Treasury Secretary Yellen, the twists and turns of the U.S. debt ceiling negotiations continue. Despite Federal Reserve Chairman Powell's statement on Friday that interest rates may not need to rise due to credit pressures, the issues around the debt ceiling led to a widening in the fall of U.S. stocks and a significant rise in gold prices.
In fact, similar interruptions have occurred in past debt ceiling negotiations. So Friday's events were as some market insiders expected, who had previously warned investors not to overestimate the speed or smoothness of the negotiations leading to a final victory.