Pelosi Timeline for Debt Limit Deal Draws White House Doubts
Pelosi Seeks Debt Limit Deal This Week After Call with Mnuchin
(Bloomberg) -- House Speaker Nancy Pelosi said she wants a deal on raising the U.S. debt limit and setting spending levels before Congress leaves for its August recess, but a Trump administration official said there’s still a long way to go to reach an agreement on the budget.
Failure to agree on a package before the House leaves for recess next week could force Congress to settle for a short-term debt limit fix and delay the tougher discussion about spending levels. The Treasury-bill market is showing signs of concern, with small pricing dislocations appearing around securities maturing close to potential crunch dates in September and October.
Congress doesn’t have to attach a budget agreement to a bill raising the debt limit, but leaders of both parties want to use that must-pass bill to resolve some of their other fiscal deadlines. If they don’t bridge disagreements over extra funding for veterans’ health and how to pay for spending increases, Treasury Secretary Steve Mnuchin said Congress should pass the debt limit increase without the budget deal.
The other fallback option -- a short-term increase for the Treasury’s borrowing authority -- would push back by a few months the date at which the U.S. risks missing payments.
The impasse before House members leave Washington on July 26 for a six-week recess shows how major congressional decisions are regularly left to the last minute, risking collateral economic damage. Pelosi has been leading the negotiation in a series of phone calls with Mnuchin, seeking a deal she can sell to her divided caucus.
Temporary Extensions
A longer-term resolution to the debt ceiling question could help smooth pricing kinks in the market for U.S. Treasuries. A stop-gap measure, however, may simply shift the problem to another part of the T-bill curve, or even spur further anxiety among investors.
“It seems like they might think rejiggering the debt ceiling with temporary extensions is a good idea to buy them some time, but it’s just creating more points with potential events,” said Jefferies money-market economist Thomas Simons. “I think it would get the market going in a direction that is significantly negative and starts to draw a lot of attention.”
The Treasury Department has been using so-called extraordinary measures to meet debt obligations since March 2, when the U.S. reached its $22 trillion limit on borrowing. Mnuchin on Monday said one scenario shows the U.S. could risk default in early September -- before lawmakers return from their summer recess.
Pelosi and Senate Minority Leader Chuck Schumer on Wednesday spoke again with Mnuchin, who is in France for a Group of Seven meeting. Pelosi and Mnuchin have been speaking regularly, but so far President Donald Trump hasn’t weighed in publicly. He has, in the past, scuttled deals worked out by officials in his administration.
The Trump administration official, who asked not to be identified when describing private conversations, threw cold water on the optimism that Pelosi and GOP senators like Richard Shelby, the Alabama Republican who chairs the Appropriations Committee, have expressed publicly.
One of the sticking points is that Pelosi has sought to exempt $22 billion of veterans’ spending from budget caps for the next two fiscal years. The administration also wants to offset $150 billion of the spending increases, the person familiar with the talks said. Some Republicans have also suggested new longer-term spending caps.
“Our goal would be to do a two-year budget cap deal and the debt ceiling,” Pelosi told reporters. “If we are going to pass it by next Thursday, which is what we want to do and we are going to follow regular order, then we have to get something soon so that we can post it with enough time.”
Most of the T-bills curve rallied Wednesday, possibly reflecting a degree of optimism about the ceiling issue, with the yield on the benchmark three-month note down around 2 basis points at 2.12%.
Pelosi said there’s little support among Democrats for a short-term debt ceiling fix if the broader negotiations fall through. Lawmakers and the White House have mulled the possibility of a one month or three month debt ceiling measure to give them more time to work out the details of the budget caps deal.
“A short-term resolution does nothing to address the fundamental problems,” said Bank of America interest-rate strategist Mark Cabana. “Funding pressure would come after the debt limit is resolved, whether that’s in one month or three months, or even if extraordinary measures are eliminated.”
--With assistance from Jack Fitzpatrick.
To contact the reporters on this story: Erik Wasson in Washington at ewasson@bloomberg.net;Alexandra Harris in New York at aharris48@bloomberg.net;Justin Sink in Washington at jsink1@bloomberg.net
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Anna Edgerton
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