WASHINGTON, Oct.6 (Reuters) – The US Senate appeared close to a temporary deal to avoid a federal debt default over the next two weeks, after Democrats said on Wednesday they could agree to a Republican proposal to defuse the partisan stalemate that threatens the economy at large. .
Democrats called off a vote early in the afternoon after Senior Senate Republican Mitch McConnell came up with a plan that would save more time to resolve the issue. McConnell has proposed that his party allow an extension of the federal debt ceiling until December.
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Without Congressional action to raise the debt limit to $ 28.4 trillion, the Treasury Department predicted it would no longer have the means to meet all of its obligations by October 18.
Several Democrats have said they will accept the offer. “We intend to achieve this temporary victory,” Democratic Senator Tammy Baldwin told CNN.
But without a statement from Democratic Senate Leader Chuck Schumer, it was not clear if this was the party’s official position, and the White House did not commit to the idea.
The White House has yet to receive an official offer, spokeswoman Jen Psaki said.
Still, Democrats are expected to address the issue again in December, just as federal funding is set to expire. This could complicate their efforts to pass two massive spending bills that make up a large part of Biden’s national agenda.
Republicans said Democrats could use the intervening weeks to pass a longer debt ceiling extension through a complex process called reconciliation, which Democrats called too cumbersome and risky. McConnell said Republicans would make concessions to help speed up the process.
There are less than two weeks left before the Treasury Department expects to run out of funds to meet government spending. The Bipartisan Policy Center said on Wednesday that unemployment insurance payments, salaries for millions of federal employees, and medical insurance payments could be delayed without increasing the debt ceiling.
Republicans were to block the bill put to vote on Wednesday, which suspended the debt ceiling until December 2022, after the midterm elections that will determine which party controls Congress for the next two years.
Analysts say a default could wreak havoc on the global financial system and cause millions of job losses.
Even a close call would likely be damaging. A debt ceiling dispute in 2011 that Congress resolved two days before the borrowing limit was reached sent stocks tumbling and led to a first-ever credit rating downgrade on U.S. debt.
Moody’s Investors Service said Tuesday it expects Washington to eventually raise the debt limit, and U.S. stock indexes rose on Wednesday as investors became more optimistic that Congress could reach a deal.
A more telling indication of investor relief was evident in the US Treasury market, which would be directly affected by a US default. 1-month Treasury bill rates – the securities most likely to be depreciated by a government default to pay interest or principal on debt immediately after maturity – fell sharply, indicating that investors were again willing to buy them.
Democrats had considered other options to resolve the stalemate.
Biden said on Tuesday Democrats could weaken a long-standing rule known as filibuster that requires 60 votes to advance most laws in the 100-seat Senate.
But that notion appeared to fade on Wednesday, as a key centrist Democrat Senator Joe Manchin said he would not support it.
Reporting by Richard Cowan and David Morgan, additional reporting by Makini Brice, Susan Cornwell and Steve Holland; Written by Andy Sullivan; Editing by Scott Malone, Howard Goller and Sonya Hepinstall
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