What to Know in Washington: US on Credit Watch as Default Looms

Speaker Kevin McCarthy’s optimism that White House and GOP negotiators would reach a deal in time to avert a potentially catastrophic default didn’t mollify analysts as the US was put on a ratings watch.

McCarthy (R-Calif.) said after a four-hour meeting between his and President Joe Biden’s hand-picked negotiators that a deal was possible before June 1, the date by which Treasury Secretary Janet Yellen has warned the US could run out of money to pay its bills.

“I still think we have time to get an agreement, and get it done,” McCarthy said after the meeting concluded.

Kent Nishimura / Los Angeles Times via Getty Images

Speaker of the House Kevin McCarthy (R-CA) speaks with reporters as he leaves the House Chamber at the U.S. Capitol on Wednesday, May 24, 2023 in Washington, DC.

Hours later, Fitch Ratings placed the US’ AAA credit rating on watch, a sign of growing unease about the country’s ability to avert a first-ever default. The US received a credit downgrade during similar turmoil in 2011.

Fitch still expects a resolution to the debt limit before the June 1 so-called “X-date.”

Treasury Department spokesperson Lily Adams said in a statement that “tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.”

On Capitol Hill, House Democratic Whip Katherine Clark blamed Republican “hostage-taking” for risking the US credit rating.

“Even the ratings watch is going to cause economic problems,” she told reporters at the Capitol Wednesday night. “This is the beginning.”

McCarthy’s office had no response on Wednesday night to a request for comment on Fitch’s action.

House lawmakers are expected to leave town today for the Memorial Day holiday weekend. Republican leaders have asked that they be able to return on 24 hours’ notice, if a vote is called. Erik Wasson, Billy House, and Ari Natter have the latest.

More Debt Limit Developments

Congress Already Sees Need to Evade Spending Caps in a Debt Deal

Lawmakers pushing to cap spending as part of a debt limit deal already acknowledge the funding limitations won’t be airtight, as members expect exemptions for emergency spending and maybe even wholesale cap increases.

Any Debt Deal Still Faces Time-Consuming Hurdles in Congress

Even if Biden and McCarthy shake hands on a debt limit deal, there is still a procedural and political gauntlet to run before the US can avert a default.

Social Security Looms as Ultimate Enforcer of Debt-Limit Deal

On June 2, millions of Americans are due a total of $25 billion worth of Social Security payments. And more than anything else, that may prove a decisive element in forcing an end to the partisan standoff.

Voters Assign Equal Blame to Both Sides in Debt Limit Fight

Voters blame Republicans and Democrats equally for the standoff over the debt ceiling, a series of new polls shows, sending a mixed message to Biden and McCarthy as they try to leverage public opinion to their sides in the negotiations.

Treasury’s Cash Pile Actually Building as Debt Fight Goes On

The amount of money the government has to pay its bills has actually increased for three straight days, providing some measure of relief.

BIDEN’S AGENDA

• Biden at 1:45 p.m. announces his intent to nominate General Charles Q. Brown Jr. for the next chairman of the Joint Chiefs of Staff
• At 1 p.m., White House Press Secretary Karine Jean-Pierre gives a briefing

CONGRESS’ SCHEDULE

• The House meets at 9 a.m. to vote on a bill to ban all fentanyl-related substances permanently

BGOV Webinar — The Debt Limit: Outlook, Concerns, and Strategies: Today at 11 a.m. join BGOV’s experts for a discussion about the debt limit crisis and how organizations can prepare for possible disruptions. BGOV’s reporters and analysts will dive into possible outcomes and how they could affect strategies, budgets, government programs, and federal contracting. Register here.

Hill Happenings

Biden’s Student Debt Cancellation Plan Draws Rebuke in House

The House on Wednesday voted to block the Biden administration from canceling hundreds of billions of dollars in student loan debt ahead of a likely Supreme Court decision to strike down the signature administration proposal.

Accelerating Broadband, Airwaves Auction Gains in House Panel

Lawmakers are taking steps to ensure the billions of dollars they devoted to providing Americans with access to high-speed internet don’t go to waste.

Proposal Giving Teachers, Others Retirement Plan Parity Advances

The House Financial Services Committee approved legislation that would allow teachers and nonprofit workers to access the same retirement investment options as private-sector 401(k) participants.

What Else We’re Reading

End of Covid Emergency Rules Means Insurance Halt for Millions

More than 6 million people will be without health insurance after the end of Covid-related federal policies that prevented states from kicking people off their Medicaid programs, the nonpartisan Congressional Budget Office reports.

Biden Renews Call for Assault Weapons Ban One Year After Uvalde

Biden renewed his call for Congress to ban assault weapons and high-capacity magazines, as well as enact other gun safety measures as he observed the one-year anniversary of a deadly mass shooting at an elementary school in Uvalde, Texas.

Navy Lawyer Blames Lejeune Delays on Funding, Staff Shortages

In an email to claimants’ lawyers, Navy attorney Jennifer Tennile Karnes said nearly 500 law firms have registered to represent Camp Lejeune clients, with another 100 pending. She said her unit is working “an unsustainable amount of overtime” to process claims and that it hopes to nearly double its staff by the end of the summer.

Guam Typhoon Highlights Threat to US Military’s Pacific Strategy

As Typhoon Mawar neared the coast of Guam early Wednesday, it also drew attention to an uncomfortable fact of US military strategy: Many of America’s most strategic assets are in places increasingly threatened by extreme weather events, rising seas and other consequences of climate change.

To contact the reporters on this story: Brandon Lee in Washington at blee@bgov.com; Michaela Ross in Washington at mross@bgov.com

To contact the editor responsible for this story: Kayla Sharpe at ksharpe@bloombergindustry.com