Just as all parties appeared to have backed themselves against a wall when it came to raising the debt ceiling, Treasury Secretary Janet Yellen revised her earlier doomsday prediction to hand the negotiators a little more breathing room. The country now will not default until June 5 — all things being the same.
The financial markets took this reprieve as a sign that no matter what, a default would not be allowed. The Dow Jones Industrial Average rose 1%, and other financial indices moved higher on the news as well.
House Speaker Kevin McCarthy (R-CA) seemed to plead for more time Thursday evening when he told reporters, “We’re going back and forth, and it’s not easy. We want to make sure this is an agreement worthy of the American people, and so it takes a while to make it happen. And we’re working hard to make it happen.”
As the deal is formed, details are coming out. Both sides appeared to agree to protect defense spending from cuts.
However, the expansive funding of the IRS that received so much press last year looks to be on the chopping block. This could have a double impact, as reduced IRS funding will likely also bring down tax revenue for a net increase in the deficit.
The House Freedom Caucus, which is made up of members in the right wing of the Republican caucus, sent McCarthy a letter encouraging him to stand firm on the demands found in the Limit, Save, Grow Act that passed on a party-line vote. McCarthy responded to this pressure by calling out its proponents for having unrealistic expectations.
McCarthy praised the bill to reporters Friday before throwing cold water on the idea that it could be the basis for a deal, saying, “It raises the debt limit, it curves back our spending, brings back wasteful money, and actually unshackles what’s holding us back. This is all positive stuff. But unfortunately, we’ve got to get a bill that can get through the Senate and signed by the president, and it’s a lot of negotiation.”
