Washington continues to struggle to find a resolution of the debt ceiling, which threatens to cause a meltdown of financial markets if the United States doesn’t pay all its bills. Last week witnessed on and off talks between House Republicans and the White House. Friday morning the Republicans paused the talks for lack of progress, but then the negotiations were restarted by Friday evening only to be stopped again on Saturday and restarted last night.
Sunday, as President Biden was headed back from the G7 talks in Japan he and Speaker McCarthy talked and agreed that they would have another one-on-one meeting at the White House today. Both sides implied that the phone conversation was positive and that defaulting was not acceptable. However, both sides appear to be far apart with no real exit strategy for this self-inflicted crisis.
Last week Democrats started the arcane process of filing a discharge petition, which is a tool in the House rules that allows a bill to come to the House floor without the support of the Speaker. But there is one big catch – it requires the signature of 218 House members and with the current line up of 222 Rs and 213 Ds that is not going to happen. During my days as a House aide I worked for a Member who was a consensus builder, but on the rare occasion when a discharge petition was being considered, the Leadership made very clear that there would be a cost for signing against the will of Leadership. For Republican Members this is stronger than ever and I can’t foresee any Republican joining Democrats to move a debt ceiling bill to the floor against the wishes of the Speaker. Chances of a discharge petition being successful are just about zero.
Another potential alternative to Congressional action is President Biden invoking the 14th Amendment to the US Constitution that we all now know says: “The validity of the public debt of the United States, authorized by law…shall not be questioned.”
While President Biden has said that he is looking at the 14th amendment the all but certain legal challenge would have the same uncertainty as default and leave Americans and financial markets in turmoil.
With the House divided 222 to 213 and many Republicans unlikely to vote for any debt ceiling increase, last week the House Republican Freedom Caucus issued a statement urging Speaker McCarthy to stop talking to the President and insist on the Senate acting on the House passed bill.
House Democratic progressives wrote to President Biden last week urging him to use the 14th amendment rather than negotiate. Bottom line is that any House action will need to be bipartisan.
In the Senate the vote to increase the debt ceiling will be subject to a filibuster so it will be a 60 vote threshold and the current Senate lineup is 51 to 49.
On yesterday’s Meet the Press, Treasury Secretary Yellen said that there was little chance the government could pay bills as late as June 15 leaving some uncertainty as to the exact X-date.
Another issue to watch will be how long the debt limit will be suspended or increased. The House approved Republican bill only increased the ceiling until April 1, 2024 but many believe the issue should be taken off the table during an election year and the bill should run until 2025.
Both sides will need to give and likely leave their extremes on the left and right opposed to the final product, but most laws are made in the middle and that is likely to be the exit strategy for this crisis. Pressure will be especially tough on the Speaker as the vote on his current term was hard fought and demonstrated sharp divisions within the House Republican caucus. Real headline risk lies ahead in the coming days as both sides hint at success or failure.
FOMC Minutes
Wednesday at 2:00pm the Federal Reserve will release the minutes from the Federal Open Markets Committee (FOMC) meeting that occurred on May 2/3. While the minutes always can hold clues for future policy, these minutes likely are more important than most.
At the Chair’s presser after the May meeting he indicated that while there was wide support for the May 25bps rate increase, there were voices who supported taking a pause in rate policy going forward. As I have written in the past, the minutes act as a fact-checker on the Chair’s presser remarks. As speculation increases that the June meeting will see a pause, the minutes may shed light on the views held by Committee members.