Race to reach debt ceiling deal

The US Government will run out of money to meet all its payment obligations on June 5 if Congress does not raise the debt ceiling, Treasury Secretary Janet Yellen says, providing a more precise forecast to lawmakers trying to break an impasse.

Her new projections come as lawmakers struggle to strike a deal that would raise the nation’s borrowing limit and hold spending down, which Republicans have said is necessary to get their support to raise the borrowing limit.

Yellen had previously told Congress that the government could run out of funds in early

June but ‘‘as soon as’’ June 1.

President Joe Biden and House Speaker Kevin McCarthy have reported progress in recent days on a government spending deal that would also lift the debt ceiling, but as yesterday no agreement had been made public, and negotiators continued to face significant rifts.

Negotiators were closing in on an agreement that would raise the debt ceiling by two years – a key priority of the Biden Administration – while also essentially freezing government spending on domestic programmes, and slightly increasing funding for the military and veterans affairs, said three people familiar with the matter who spoke on the condition of anonymity.

Although the deal is expected to include key GOP priorities, a growing chorus of conservatives has balked at how little the deal appears to cut government spending overall – especially because it would also give up their party’s leverage on the debt ceiling until after the 2024 presidential election. The extent and ferocity of the revolt could prove crucial to the ongoing debt ceiling standoff, as well as McCarthy’s future.

Even if negotiators do reach an agreement soon, they need time to put it into action. House rules require 72 hours for lawmakers to review legislation before a vote. The Senate would also have to act. All told, passage could take days.

With lawmakers in the House and Senate now back in their districts for Memorial Day weekend, the timeline became more precarious by the hour.

For weeks, negotiators had clashed over GOP demands that would significantly cut federal spending on programmes such as nutrition aid, housing assistance, education and scientific research.

But negotiators appeared to reach a breakthrough this week. Repurposed money from the IRS and other federal programmes will allow Democrats to mitigate the cuts to the domestic programmes, while the overall amount of spending will go down – a key McCarthy demand. Spending on veterans and the military will also rise.

At least two key issues – new work requirements, and permitting reform to spur domestic energy production – remained unresolved.

Yellen warned of severe consequences if lawmakers failed to act. ‘‘We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,’’ she said.