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May 25, 2023 Latest on debt ceiling negotiations

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9:46 p.m. ET, May 25, 2023

Negotiators continue moving closer to deal to raise debt ceiling while also capping spending, sources say

From CNN's Jeremy Diamond and Lauren Fox

White House officials and Republican negotiators are continuing to move closer to an agreement to raise the debt ceiling while also capping spending, two sources familiar with the matter said late Thursday.

The agreement is not yet finalized and there are a series of other outstanding issues beyond spending levels, with both sides especially far apart on work requirements for social safety net programs. 

Under the potential agreement, the debt ceiling would be raised for two years while also capping federal spending — except for defense and veterans spending — for the same period, two sources familiar with the negotiations said.

A separate source who's also familiar with negotiations said the two sides are still working out details on the length of the spending caps deal, which Democrats have insisted should only last for as long as a debt ceiling raise.

Based on current discussions, non-defense discretionary spending levels would be cut to a level slightly below funding levels for the current fiscal year. 

Discretionary spending would be allowed to rise by 1% in the second year of the agreement, the sources said.

Both sides still remain far apart on work requirements with Republicans still looking to add them to Medicaid, SNAP and TANF.

GOP negotiator Garret Graves told CNN Thursday evening that progress is slow, voicing frustration with the White House over key aspects of the negotiations, especially work requirements. 

The White House "continues to prioritize paying people to not work over paying Social Security benefits and Medicare benefits, their efforts actually put in jeopardy those very benefits to senior citizens like Medicare and Social Security because they're refusing to negotiate on work requirements," he said.
8:04 p.m. ET, May 25, 2023

Top credit agency warns it could downgrade 2 government-backed mortgage giants

From CNN's Matt Egan

Fitch Ratings is putting two government-backed mortgage giants on watch for credit ratings downgrades as the standoff over the debt ceiling lingers.

It said the decision to put Fannie Mae and Freddie Mac on watch for downgrades "reflects the uncertainty" on the US credit rating. Fitch is one of the top three credit rating agencies along with Moody's and S&P.

Fitch added that it is unclear how much support the government-sponsored enterprises, or GSEs, can expect from Washington if the United States were to default on some of its obligations.

Some context: Fannie Mae and Freddie Mac do not issue loans, rather they purchase loans from lenders to hold, sell or repackage as investments. Their role in the mortgage market helps lenders issue more loans and keep lending stable and affordable. The Federal Housing Finance Agency is the government regulator that oversees Fannie and Freddie.

The move comes just a day after Fitch put the United States itself on rating watch negative due standoff in Washington surrounding the debt ceiling.

8:16 p.m. ET, May 25, 2023

A look at how Treasury Department team monitors economic warning signs

From CNN's Jeremy Diamond and Allie Malloy

The exterior of the Treasury Department building is pictured March 13 in Washington, DC. Chip Somodevilla/Getty Images

Nearly five months before the US was projected to hit the debt ceiling, a small team inside the Treasury Department began alerting top officials to early effects already being felt in the US financial system. 

The cost of insuring US debt, as measured by the price of credit-default swaps, was rising — a sign that investors were beginning to view US bonds and other securities as increasingly risky.

That early warning — and subsequent ones over the last month as the swaps pricing has surged — came out of the Treasury Department's Markets Room and its eponymous team of nine financial analysts who are responsible for monitoring and analyzing global financial markets to inform the policy work of top Treasury Department and White House officials.  

As the US rapidly approaches a potential default date in early June, top US officials are increasingly relying on the Markets Room to monitor for signs of disruption in the financial markets. 

"In the same way that a doctor wants to understand the vital signs of a patient as they're thinking about how to treat them, at Treasury keeping abreast of understanding the various ways in which the economy is healthy or unhealthy. And part of that is understanding the market," Deputy Treasury Secretary Wally Adeyemo told CNN. 

"So, we're spending a lot of time with them better understanding what the costs are today, in order to make sure that we're in a position to share that information with Congress, in order to prevent us from getting into a position where for the first time in our history, we're unable to pay all of our obligations on time," he said.

That work begins each day before dawn when staffers take turns waking up around 3:30 a.m. ET to compile data about overnight market developments and begin making calls to contacts working in European and Asian markets. 

At around 7 a.m. ET, those data and insights land in the inboxes of top policymakers at the White House and Treasury Department. 

At 9 a.m. ET, before the US markets open, Treasury Secretary Janet Yellen and her senior leadership team huddle virtually with the Markets Room and other key Treasury Department aides for a briefing on the state of the financial markets and issues to watch for that day. 

In recent weeks, that daily briefing has heavily focused on reverberations of the debt limit standoff, from updates on auctions of Treasury bills to market reactions and commentary from market analysts and economists.

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6:34 p.m. ET, May 25, 2023

McCarthy leaves Capitol without a deal on debt ceiling

From CNN's Haley Talbot and Kristin Wilson

House Speaker Kevin McCarthy left the Capitol on Thursday evening with no deal on the debt ceiling, saying there was back and forth with the White House but that hammering out an agreement wasn't easy.

" We are going to continue to work until we get this done," he said. 

McCarthy would not get into specifics and left for the day.  

Rep. Patrick McHenry, a GOP negotiator, remains in the speaker's office with his two children and is not expected to be here much longer, according to an aide. 

With no bill to vote on, House lawmakers are expected to leave for the holiday weekend — though they will be given 24 hours' notice to return if a deal is reached.

6:46 p.m. ET, May 25, 2023

GOP Sen. Tim Scott pushes for work requirements for federal aid programs amid debt ceiling talks

From CNN's Kate Sullivan

Republican Sen. Tim Scott of South Carolina waves to members of the New Hampshire Federation of Republican Women at Saint Anselm College's New Hampshire Institute of Politics in Manchester, New Hampshire, on May 25. Nicholas Pfosi/Reuters

Republican Sen. Tim Scott of South Carolina on Thursday advocated for work requirements for federal aid programs as he campaigned in New Hampshire amid ongoing negotiations in Washington over raising the nation's debt ceiling. 

Scott, who announced his bid for the GOP presidential nomination earlier this week, argued implementing work requirements would reduce government spending and help differentiate "those who cannot do for themselves, as opposed to those who will not do for themselves." 

"One of the things I learned from my mother, who worked 16-hour days as a nurse's aide changing bedpans, is that there's dignity in all work. And today's negotiation restoring work requirements to our social programs, being a recipient, is common sense to me," Scott said at an event hosted by the New Hampshire Federation of Republican Women in Manchester, New Hampshire.

Where negotiations stand: House Republicans are using the standoff over the debt ceiling to advocate for a longstanding goal of requiring more low-income Americans to work in order to receive government benefits, including food stamps and Medicaid. 

As part of the negotiations, the White House and House GOP are discussing a deal that would lift the ceiling through 2024 while placing caps on the 12 annual spending bills Congress must pass by the end of the fiscal year, a source told CNN. 

5:49 p.m. ET, May 25, 2023

GOP negotiator says work on a deal continues but "there's no flexibility" on default deadline

From CNN's Morgan Rimmer and Kristin Wilson

Rep. Patrick McHenry speaks to members of the press in a hallway of the U.S. Capitol on May 25, in Washington, DC. Alex Wong/Getty Images

A Republican negotiator said "the work continues" on a debt ceiling deal and that it's still going to take time to pull it all together.

"I think there's a sense of understanding from both teams that we have serious issues still to work out and come to terms with and that's gonna take some time. That's all there is to it," Rep. Patrick McHenry said.

But, he also said the people working on the deal recognize that the X-date deadline is not negotiable. That's the date the US Treasury Department said the country will default, which could be as soon as June 1.

"There's no flexibility on that. So the pressure's on and the White House recognizes that. We recognize that," McHenry said.

5:12 p.m. ET, May 25, 2023

In letter to McCarthy, group of hardline Republicans outline new demands in debt ceiling talks

From CNN's Melanie Zanona 

Rep. Bob Good talks with reporters outside the Capitol during the last votes of the week on Thursday, May 25. Tom Williams/CQ-Roll Call/Getty Images

A group of 35 hardline Republicans sent a letter to House Speaker Kevin McCarthy Thursday calling for additional demands in the debt ceiling talks and floating a new strategy.

The latest move is part of a pressure campaign to pull the debt ceiling deal as far right as possible. 

What they are asking for: In the letter, they urged McCarthy to include provisions to beef up border security and block the FBI's new headquarters — even though it wasn't in the House-passed GOP debt ceiling bill.

They also called on the speaker to force the Treasury Secretary to "prove" her work when she estimates the default date. 

The group also called to immediately pass a standalone bill to claw back unspent Covid funds and some IRS funding, which they said would help provide immediate cash and push back the X-date in order to buy themselves more time. 

View the full letter here:

4:51 p.m. ET, May 25, 2023

US markets close mixed as investors grow increasingly concerned about stalled debt talks

From CNN's Nicole Goodkind 

Traders work on the floor of the New York Stock Exchange on May 25, in New York City.   Spencer Platt/Getty Images

US stocks were mixed on Thursday as investors were encouraged by stellar quarterly results from AI-backer Nvidia despite an ongoing standoff in debt ceiling negotiations.

Markets were also buoyed by economic news. Gross domestic product — the broadest measure of economic output — grew faster in the first three months of the year than previously estimated, the Commerce Department reported on Thursday.

There is some concern, however, that the economy's resilience complicates the path forward for the Federal Reserve.

Policymakers have been attempting to slow the economy through rate hikes to fight elevated inflation. The GDP data could mean that more economically painful hikes lie ahead.

Investors are also growing increasingly concerned about stalled debt ceiling negotiations and the lack of progress toward a potential deal.

There are just three trading days left until Treasury Secretary Janet Yellen's June 1 estimated deadline for the US to raise the debt ceiling or the county risks defaulting.

Treasury yields, aside from the one-month, moved higher across the curve on Thursday, as worries of a default grew.

The Dow closed down 35 points, or 0.1% on Thursday. The S&P 500 was 0.9% higher. The Nasdaq Composite gained 1.7%.

As stocks settle after the trading day, levels might change slightly.

4:31 p.m. ET, May 25, 2023

Democrats dig in against work requirements in any debt limit deal

From CNN's Morgan Rimmer

House Democrats left their caucus meeting Thursday afternoon even more entrenched in their opposition to including work requirements in any debt limit deal.

Republicans have been using the debt ceiling standoff to advocate for one of their longstanding goals - requiring more low-income Americans to work in order to receive government benefits, particularly food stamps and Medicaid.

"It's a non-starter, because most of the people that we're talking about are people who are elderly and are children," Rep. Emanuel Cleaver, a Democrat from Missouri, told CNN's Manu Raju.

Cleaver said he's been pleasantly surprised at fellow Democrats' willingness to dig in and not give Republicans key concessions. He said he's still hearing lawmakers call for Biden, instead of striking a deal, to invoke the 14th Amendment to avoid a debt crisis — a controversial potential strategy that the Treasury secretary cast doubt on this week.

Rep. Rosa DeLauro, a Democrat from Connecticut and her party's top member on the House Appropriations Committee, agreed the requirements are a "non-starter."

Democratic Rep. Maxine Waters from California also pushed back on any consideration of work requirements.

"Everybody should know that we have some work requirements in law right now," Waters said. "And so talking about more — for whom? The disabled? I don't know who they're talking about. It won't work."

Exploring all avenues: House Minority Leader Hakeem Jeffries is still pushing for Republicans to support a long-shot discharge petition. The procedural move could force a floor vote on the debt ceiling without the blessing of Republican leadership but requires the support of a majority of House members.

"If we wanted to do something bipartisan, we've created a vehicle. Five Republicans can join 213 Democrats to make sure that America pays our bills and we don't default," Jeffries said.

CNN's Tami Luhby contributed to this report.

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