Biden and McCarthy are scheduled to meet on Monday when debt ceiling talks resume

HIROSHIMA, Japan, May 21 (Reuters) – U.S. President Joe Biden and House Republican Speaker Kevin McCarthy are set to meet on Monday to discuss the debt ceiling, with the two leaders holding a phone call on Sunday as the president flew back to Washington. described positively.

Speaking to reporters at the U.S. Capitol following the call, McCarthy said there were positive discussions on resolving the crisis and that staff-level talks would resume later Sunday.

Asked if he was more confident after speaking with the president, McCarthy said: “Our teams are talking today and we’re setting up a meeting tomorrow (sic) and it’s better than it was before. So, yes.”

A White House official confirmed the meeting on Monday, but did not give a specific time.

Biden, who arrived at the White House late Sunday evening after a trip to Japan, said the call with McCarthy went well. “It went well,” Biden said. “We’ll talk tomorrow.”

Staff from both sides reconvened Sunday evening in McCarthy’s office at the Capitol for about two and a half hours of talks.

“We will continue to work tonight,” White House senior adviser Steve Ricchetti told reporters as he left the meeting.

Before leaving Japan following the G7 summit earlier on Sunday, Biden said he was willing to cut spending along with tax changes to reach a deal, but the Republicans’ latest offer was “unacceptable.”

With less than two weeks to go until June 1, US Treasury Secretary Janet Yellen reaffirmed on Sunday that the federal government may not be able to pay off all of its debt, as the Treasury Department warned. Failure to raise the debt ceiling would trigger chaos in financial markets and a default that would raise interest rates.

McCarthy’s comments on Sunday appeared more positive than the increasingly heated rhetoric of recent days, with both sides reverting to calling the other’s positions extremist and talks stalled.

“Most of what they’ve already proposed is simply, quite frankly, unacceptable,” Biden told a news conference in Hiroshima. “It’s time for Republicans to accept that there is no bipartisan deal, only on their party terms. They need to move, too.”

The president later tweeted that he would not agree to a deal that would protect “big oil” subsidies and “wealthy tax cheats” while jeopardizing health and food aid for millions of Americans.

He suggested that some Republican lawmakers were ready for America to default on its debt so that disastrous results would prevent Democrat Biden from winning re-election in 2024.

After Sunday’s call, McCarthy said there was still no final deal, and that before the two leaders met there was an understanding to reunite negotiators on both sides: “There is no agreement. We are still separated.”

“What I was looking at was our differences and how we could resolve them, and I realized that that part was useful,” he told reporters.

Meanwhile, default concerns weighed on markets as the government’s self-imposed debt ceiling continues to require increases to cover spending and tax cuts previously approved by lawmakers.

On Friday, the US was forced to pay higher interest rates in its latest debt offering.

Cost cuts

McCarthy said Republicans support increasing the defense budget while reducing overall spending, and that discussions of tax cuts passed under former President Donald Trump have not been included in debt ceiling talks.

A source familiar with the negotiations said the Biden administration has proposed keeping non-defense discretionary spending flat for next year.

Ahead of the call, Biden said he was willing to make spending cuts and that he wasn’t worried they would lead to a recession, but he couldn’t accept Republicans’ current demands.

The Republican-led House passed legislation last month that would cut government spending by 8% next year. Democrats say they will force average cuts of at least 22% in programs like education and law enforcement, which top Republicans don’t dispute.

Republicans hold a slim majority in the House and Biden’s fellow Democrats have narrow control of the Senate, so no deal will pass without bipartisan support. But time is running out with just 10 days left to hammer out a deal before Monday’s meeting hits Treasury’s deadline.

McCarthy has said he would give House lawmakers 72 hours to reconsider a deal before bringing it up for a vote.

The last time the country got this far was in 2011 with a Democratic president and a Republican-led Senate.

Congress eventually blocked default, but the economy suffered severe shocks, including the first downgrade of the US’s top-tier credit rating and a massive stock selloff.

Reporting by Trevor Hunnicutt; Editing by Simon Cameron-Moore

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