Biden says debt deal 'very close' with default deadline now set at June 5

Yet Biden was upbeat as he left for the Memorial Day weekend at Camp David, declaring, “It's very close, and I'm optimistic.”

With Republicans at the Capitol talking with Biden's team at the White House, the president said: “There’s a negotiation going on. I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.” But a deal had not come together by the time Republican House Speaker Kevin McCarthy left the Capitol late Friday.

In a blunt warning, Yellen said failure to act by the new date would “cause severe hardship to American families, harm our global leadership position and raise questions about our ability to defend our national security interests.”

Anxious retirees and others were already making contingency plans for missed checks, with the next Social Security payments due next week.

Biden and McCarthy seemed to be narrowing on a two-year budget-slashing deal that would also extend the debt limit into 2025 past the next presidential election. After frustrating rounds of closed-door talks, a compromise had appeared to be nearing on Friday.

Republicans have made some headway in their drive for steep spending cuts that Democrats oppose. However, the sides are particularly divided over McCarthy's demands for tougher work requirements on government food stamp recipients that Democrats say is a nonstarter.

Earlier Friday, McCarthy said his Republican debt negotiators and the White House had hit “crunch” time, straining to wrap up an agreement.

Any deal would need to be a political compromise, with support from both Democrats and Republicans to pass the divided Congress. Failure to lift the borrowing limit, now $31 trillion, to pay the nation’s incurred bills, would send shockwaves through the U.S. and global economy.

But many of the hard-right Trump-aligned Republicans in Congress have long been skeptical of Treasury's projections, and they are pressing McCarthy to hold out.

As talks pushed into another late night, one of the negotiators, Rep. Patrick McHenry, R-N.C., called Biden’s comments “a hopeful sign.” But he also cautioned that there’s still “sticky points” impeding a final agreement.

While the contours of the deal have been taking shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides remain stuck on various provisions.

A person familiar with the talks said the two sides were “dug in” on whether or not to agree to Republican demands to impose stiffer work requirements on people who receive government food stamps, cash assistance and health care aid.

House Democrats have called such requirements for health care and food aid a nonstarter.

Asked if Republicans would relent on work requirements, Republican negotiator Rep. Garret Graves of Louisiana fumed, “Hell no, not a chance."

House Republicans displayed risky political bravado in leaving town for the holiday. Lawmakers are tentatively not expected back at work until Tuesday, but now their return date is uncertain.

“The world is watching,” International Monetary Fund Managing Director Kristalina Georgieva said after meeting Friday with Yellen. “Let’s remember we are now in the 12th hour.”

Weeks of negotiations between Republicans and the White House have failed to produce a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that the country's full faith and credit should not be used as leverage to extract other partisan priorities.

“We have to spend less than we spent last year. That is the starting point,” said McCarthy.

One idea is to set the topline budget numbers but then add a “snap-back” provision to enforce cuts if Congress is unable during its annual appropriations process to meet the new goals.

On work requirements for aid recipients, the White House is particularly resisting measures that could drive more people into poverty or take their health care, said the person familiar with the talks, who was granted anonymity to describe behind-closed-door discussions.

Over the Republican demand to rescind money for the Internal Revenue Service, it's still an “open issue” whether the sides will compromise by allowing the funding to be pushed into other domestic programs, the person said.

In one potential development, Republicans may be easing their demand to boost defense spending beyond what Biden had proposed in his budget, instead offering to keep it at his proposed levels, according to another person familiar with the talks.

The teams are also eyeing a proposal to boost energy transmission line development from Sen. John Hickenlooper, D-Colo., to facilitate the buildout of an interregional power grid.

They are all but certain to claw back some $30 billion in unspent COVID-19 funds now that the pandemic emergency has officially been lifted.

Meanwhile, McCarthy is feeling pressure from the House's right flank not to give in to any deal, even if it means blowing past the Treasury deadline.

McCarthy said Donald Trump, the former president who is again running for office, told him, “Make sure you get a good agreement.”

Watchful Democrats, though, are also pressing Biden. The top three House Democratic leaders, led by Rep. Hakeem Jeffries, spoke late Thursday with the White House.

McCarthy has promised lawmakers he will abide by the rule to post any bill for 72 hours before voting. The Democratic-held Senate has vowed to move quickly to send the package to Biden’s desk.

The White House has continued to argue that deficits can be reduced by ending tax breaks for wealthier households and some corporations, but McCarthy said he told the president as early as their February meeting that raising revenue from tax hikes was off the table.

While Biden has ruled out, for now, invoking the 14th Amendment to raise the debt limit on his own, Democrats in the House announced they have all signed on to a legislative “discharge” process that would force a debt ceiling vote. But they need five Republicans to break with their party and tip the majority to set the plan forward.

Associated Press writers Mary Clare Jalonick, Stephen Groves, Farnoush Amiri and videojournalist Rick Gentilo contributed to this report.