The two sides reiterated that a default is "off the table and the only way to move forward is in good faith toward a bipartisan agreement," Mr. Biden said in a statement.
The debt limit or debt ceiling — the terms are used interchangeably — is a cap on the money the U.S. government can borrow to pay its bills. It does not authorize any new spending, but it allows the Treasury Department to finance the existing legal obligations already approved by Congress. The debt limit was last raised in December 2021 and stands at $31.4 trillion.
In a letter to congressional leaders Monday, Treasury Secretary Janet L. Yellen said its highly likely that Treasury will "no longer be able to satisfy all of the government's obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1."
Waiting until the last minute to suspend or increase the debt ceiling can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers and negatively impact the government's credit rating, Ms. Yellen said. She added, "If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests."
The Bipartisan Policy Center on Tuesday estimated a growing chance that the X-date — when the U.S. will no longer be able to meet all its obligations in full and on time — could happen between June 2 and June 13.
Republicans want to enact spending cuts before raising the debt ceiling. In April, House Republicans passed the Limit, Save, Grow Act of 2023, which would raise the debt ceiling by $1.5 trillion or until March 31, whichever comes first, and cut discretionary spending to fiscal year 2022 levels and then limit the growth of spending to 1% per year, among other provisions.
The White House has called for passing a "clean" debt ceiling bill, and Mr. Biden has called the Republicans' proposed spending cuts "extreme."
Brian Gardner, chief Washington policy strategist at Stifel, said Tuesday in a client note that the direction of the talks between Mr. Biden and Mr. McCarthy suggest that a deal to raise the debt ceiling is achievable.
And while any deal will likely face opposition from the Democrats' progressive wing and the Republicans' conservative wing, "A compromise should be able to pass with the mainstreams of each party voting as a block but there will not be much room for error," Mr. Gardner said.
Separately, even if this newfound optimism is misplaced and negotiations stall, "Chances of a default on U.S. Treasuries are remote," Mr. Gardner said. "Treasury is likely to prioritize bond payments above other government obligations and should have enough cash to pay bondholders even if the debt ceiling is not raised by early June."
