President Joe Biden and House Speaker Kevin McCarthy met for over an hour late Monday at the White House at a pivotal moment as Washington works to strike a budget compromise and raise the nation's borrowing limit in time to avert a potentially chaotic federal default.

Speaking outside the White House after the meeting, McCarthy called the meeting "productive," but said that the two sides have not yet reached an agreement.

What You Need To Know

  • President Joe Biden and House Speaker Kevin McCarthy met late Monday at the White House with just days remaining before the U.S. reaches a default deadline

  • Speaking outside the White House after the meeting, McCarthy called the meeting "productive," but said that the two sides have not yet reached an agreement

  • Ahead of the meeting, Treasury Secretary Janet Yellen warned that it is "highly likely" that her department can no longer be able to cover the country's obligations if an agreement is not reached soon

  • A default would be damaging for many Americans and people the world over relying on U.S. stability, sending shockwaves through the global economy

"I felt we had a productive discussion," the California Republican said. "We don't have an agreement yet, but I did feel the discussion was productive in areas that we have differences of opinion."

In a statement after the meeting, Biden expressed similar sentiments.

"I just concluded a productive meeting with Speaker McCarthy about the need to prevent default and avoid a catastrophe for our economy," Biden said. "We reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement."

"While there are areas of disagreement, the Speaker and I, and his lead negotiators Chairman [Patrick] McHenry and Congressman [Garret] Graves, and our staffs will continue to discuss the path forward," the president added.

McCarthy said that their respective staffs will continue meeting to try and come to an accord, adding that the tone of the meeting "was better than any other time we've had discussions."

"I think we were really able to focus on the areas of difference," he said, later adding the White House negotiators were "the most professional I've ever seen."

As the leaders gathered at the White House, Biden said he was "optimistic we’re going to make some progress."

"We still have some disagreements, but I think we may be able to get where we have to go," the president said. "We both know we have a significant responsibility."

Ahead of the meeting, Treasury Secretary Janet Yellen warned that it is "highly likely" that her department can no longer be able to cover the country's obligations if an agreement is not reached soon.

"With an additional week of information now available, I am writing to note that we estimate that it is 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," Yellen wrote in a letter to congressional leadership on Monday.

She also once again warned of the possibility that even flirting with default could prove disastrous. In 2011, the country's credit rating was downgraded after a similar default standoff was narrowly averted.

"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," Yellen wrote. "In fact, we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June. 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."

"I continue to urge Congress to protect the full faith and credit of the United States by acting as soon as possible," she concluded.

The leaders spoke by phone Sunday while the president was returning home on Air Force One after the Group of Seven summit in Japan. McCarthy told reporters at the Capitol on Sunday that the call was “productive" and that the on-again, off-again negotiations between his staff and White House representatives would resume in the evening.

Both sides have said progress was being made but that they remain far apart, and talks had lapsed for part of the weekend. Treasury Secretary Janet Yellen has said that as soon as June 1 the U.S. could start running short of cash to pay the nation's bills. Yellen said Sunday, “I think that that’s a hard deadline.”

On Monday, McCarthy expressed little interest in short-term debt ceiling increase that would give both sides more time to hash out their disagreements.

A default would be damaging for many Americans and people the world over relying on U.S. stability, sending shockwaves through the global economy. The debt ceiling is now $31 trillion.

Negotiators for the White House met for nearly three hours with McCarthy's team at the Capitol on Monday, ahead of the session between the Democratic president and the new Republican speaker.

A top Republican negotiator, Rep. Patrick McHenry of North Carolina, told reporters after the meeting with Biden: “We have a Republican House and a Republican Speaker who said we have to cut spending because the next generation cannot bear this debt load."

"That is the fundamental discussion point here that we are trying to resolve and is very sticky," McHenry, the chair of the House Banking Committee, said. "Very difficult, because there's up and there's down and unfortunately, the middle ground here is something that is not acceptable to either party."

The contours of an agreement appear within reach, and the negotiations have narrowed on a 2024 budget year cap that would be key to resolving the standoff. Republicans have insisted next year’s spending cannot be more than current 2023 levels, but Democrats have refused to accept the steeper cuts McCarthy’s team proposed and the White House instead offered to hold spending flat.

McCarthy said after his Sunday call with Biden that “I think we can solve some of these problems if he understands what we’re looking at." The speaker added, "But I’ve been very clear to him from the very beginning. We have to spend less money than we spent last year.”

McCarthy emerged from that conversation sounding upbeat and was careful not to criticize Biden's trip, as he had before, suggesting the president had used his time overseas to insist on Democratic positions that made compromise harder. He did caution, “There’s no agreement on anything.”

"I want to tell you, the American people, I will not give up on you," McCarthy said on Monday, framing the negotiations as a battle over the long-term financial future of the United States. "This won't solve all the problems. But this is the first step and I'm going to come back the next day and get the next."

McCarthy has insisted personally in his conversations with Biden that tax hikes are off the table.

Earlier Sunday, Biden used his concluding news conference in Hiroshima, Japan, to warn House Republicans that they must move off their “extreme positions” over raising the debt limit and that there would be no agreement to avoid a catastrophic default only on their terms.

Biden made clear at the press conference that “it's time for Republicans to accept that there is no deal to be made solely, solely, on their partisan terms.” He said he had done his part in attempting to raise the borrowing limit so the government can keep paying its bills, by agreeing to significant cuts in spending. “Now it’s time for the other side to move from their extreme position."

Biden had been scheduled to travel from Hiroshima to Papua New Guinea and Australia, but cut short his trip in light of the strained negotiations with Capitol Hill.

Even with a new wave of tax revenue expected soon, perhaps giving both sides more time to negotiate, Yellen said on NBC’s “Meet the Press” that "the odds of reaching June 15, while being able to pay all of our bills, is quite low.”

GOP lawmakers are holding tight to demands for sharp spending cuts, rejecting the alternatives proposed by the White House for reducing deficits.

Republicans want work requirements on the Medicaid health care program, though the Biden administration has countered that millions of people could lose coverage.

The Republican side also introduced new cuts to food aid by restricting states' ability to wave work requirements in places with high joblessness, an idea that when floated by the Trump administration was estimated to cause 700,000 people to lose their food benefits.

"The president voted for this as a senator. President Clinton signed it," McCarthy said on Fox News on Sunday, prior to the call. "We're only talking about able-bodied people who have no dependents."

Biden was one of the 78 senators who voted for the 1996 welfare reform act, a bipartisan bill that implemented work requirements as part of a rollback of the New Deal-era welfare programs for poor families. Republicans now want to do something similar for adults receiving government health care through Medicaid: require able-bodied adults between the ages of 19 and 55 without dependents either work, train for work, or do community service 80 hours a month in order to qualify.

The nonpartisan Congressional Budget Office estimates 15 million Americans would lose their health care if the Republican proposal became law. The Biden administration's own estimates are even higher.

The GOP lawmakers are also seeking cuts to IRS funding and asking the White House to accept provisions from their proposed immigration overhaul.

The White House has countered by keeping defense and nondefense spending flat next year, which would save $90 billion in fiscal 2024 and $1 trillion over 10 years.

"Defense should not be on the table," McCarthy said after the meeting. "I'm a person who believes in limited government and it is a responsibility of those to make sure we have the defense of this nation and that would be a mistake."

Among the proposals the GOP objects to are policies that would enable Medicare to pay less for prescription drugs and the closing of a dozen tax loopholes. Republicans have refused to roll back the Trump-era tax breaks on corporations and wealthy households as Biden’s own budget has proposed.

Republicans want to roll back next year's spending to 2022 levels, but the White House has proposed keeping 2024 the same as it is now, in the 2023 budget year. Republicans initially sought to impose spending caps for 10 years, though the latest proposal narrowed that to about six. The White House wants a two-year budget deal.

A compromise on those topline spending levels would enable McCarthy to deliver for conservatives, while not being so severe that it would chase off the Democratic votes that would be needed in the divided Congress to pass any bill.

Negotiators are eyeing a more narrow budget cap deal of a few years, rather than the decade-long caps Republicans initially wanted, and clawing back some $30 billion of unspent COVID-19 funds.

But Biden's team is countering that the caps Republicans proposed in their House-passed bill would amount to 30% reductions in some programs if Defense and veterans are spared, according to a memo from the Office of Management and Budget.

Still up for debate are policy changes, including a framework for permitting reforms to speed the development of energy projects, as well as the Republican push to impose work requirements on government aid recipients that Biden has been open to but the House Democratic leader Hakeem Jeffries of New York has said was a "nonstarter."

McCarthy faces pressures from his hard-right flank to cut the strongest deal possible for Republicans, and he risks a threat to his leadership as speaker if he fails to deliver. Many House Republicans are unlikely to accept any deal with the White House.

Biden is facing increased pushback from Democrats, particularly progressives, who argue the reductions will fall too heavily on domestic programs that Americans rely on.

The president, though, said he was ruling out the possibility, for now, of invoking the 14th Amendment as a solution, saying it's an “unresolved” legal question that would become tied up in the courts.