WASHINGTON — Debt-limit talks resumed in Washington on Friday hours after Republican negotiators stormed out in frustration that their demands for spending cuts weren’t being heard by White House officials.
House Speaker Kevin O. McCarthy said that the discussions were restarting after a pause of several hours prompted by the GOP walkout, and White House negotiators hand-picked by President Joseph R. Biden returned to the Capitol shortly after.
“It’s true that we took a pause because of the frustration that this White House will not acknowledge that they’re spending too much,” McCarthy said in an interview with Fox Business. “We’ll be back in the room tonight.”
Shalanda D. Young, director of the White House Office of Management and Budget, and Steven J. Ricchetti, a senior Biden adviser, had no comment when they arrived back at the Capitol. They entered the negotiating room where Republican Reps. Patrick T. McHenry, Garret N. Graves and McCarthy chief of staff Dan Meyer awaited, and the door slammed shut.
McCarthy said an increase in spending sought by the White House is “not going to happen” and said it’s been frustrating that the White House continues to push for more spending in the talks.
McCarthy’s remarks come after a turbulent few days for negotiations. One day after McCarthy said he expected a deal on the House floor next week, there was not a dramatic flare-up in the room before GOP negotiators left, according to one person familiar with the negotiations. Another 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,” Rep. Graves, Republican negotiator from Louisiana, said moments after he walked out of the session.
McCarthy’s uncharacteristically upbeat comments Thursday sent stocks upward, with the S&P 500 hitting a nine-month high, closing just shy of 4,200.
But news of the breakdown on Friday triggered a slump in stocks, with the S&P 500 at one point losing almost 0.8% from its high of Friday’s session, though the decline moderated later. The index was down 0.1% as of 12:58 p.m. in New York. Yields on US Treasury bills that mature in early June resumed climbing Friday, showcasing concerns about potential payment-default risks.
Treasury Secretary Janet L. Yellen has signaled a default could become a risk as soon as June 1.
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.”
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.
A White House official acknowledged differences between the two parties and said talks will be difficult but said a deal is still possible.
“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 after the walkout, as House Financial Services Committee Chairman Patrick T. McHenry, R-N.C., stood near him.
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 campaign opposing potential concessions to Republicans, including expanded work requirements to be applied to food stamps, welfare and Medicaid.
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 monthslong 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.
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