Democrats initially tried to push through a two-part bill that would fund both the federal government and raise the debt ceiling.
After Republicans blocked efforts to lift borrowing limit, Chuck Schumer, the Senate’s top Democrat, said Wednesday he would soon present a “continuing resolution” to continue funding the federal government before the deadline. from Friday at 12:01 am. Republicans have said they will sign such a measure. A vote is expected on Wednesday.
Schumer and the Democrats have yet to face the looming question of a possible government default. Despite raising the debt ceiling three times when Donald Trump was in the White House, Republicans now oppose lifting the borrowing ceiling and accuse Democrats of spending federal funds irresponsibly.
On Tuesday, the opposition party, led by Senate Minority Leader Mitch McConnell, closed a lane that would have allowed Democrats to go it alone and raise the debt ceiling with a party line vote in the chamber high.
The deadlock means Schumer now has around 20 days to find a way to raise the debt ceiling by October 18, when Janet Yellen, the US Treasury Secretary, warned the government would be strapped for cash to meet. its obligations to creditors.
“The only way Congress these days to do anything is to come very close to the deadline,” said Jim Manley, former assistant to Democratic Senators Harry Reid and Ted Kennedy.
He added: “So far as a country we have not suffered the economic consequences of such a political game, but at some point someone is going to make a mistake and something bad will happen. get to the country. “
Investors are already increasingly nervous about the prospect of “stagflation” – high inflation and weaker economic growth – with US stocks suffering their biggest loss since May Tuesday.
Brian Gardner, Policy Analyst at Stifel, said: “Investors should note that there is no clear path to managing the debt ceiling. It could be a tense few weeks in Washington which could add to the market volatility. “
Schumer has repeatedly ruled out a complicated legislative maneuver – known as budget reconciliation – that would allow him to push through an increase in the debt ceiling in the Senate with only Democratic votes.
“To do this through reconciliation, separate Senate and House bills must be pinged. These are uncharted waters, ”Schumer said Wednesday. “It’s very risky, and could well lead us to default. “
“If the Republicans really wanted to prevent a default as they claim, they should step back and let the Democrats do the responsible thing,” he added.
This paved the way for what some Washington insiders say is a dangerous chicken game between Democratic and Republican Senate leaders.
With little room for error and a deadline quickly approaching, US businesses have started to sound the alarm bells. Jamie Dimon, managing director of JPMorgan Chase, said on Tuesday that the bank had started to prepare for the “potentially catastrophic event” of a US credit default.
“Every time that happens it gets fixed, but we should never even get close to it,” Dimon told Reuters.
Morgan Stanley, another major US lender, said it also foresees the possibility of a US credit default.
The Business Roundtable, one of Washington’s leading business lobby groups, said on Tuesday that failure to raise the debt ceiling would pose an “unacceptable” risk to the US economy.
The looming debt crisis has come at the same time that Democratic lawmakers and the White House face an internal inter-party war that threatens to upend President Joe Biden’s entire national legislative agenda.
Capitol Hill Democrats locked in separate negotiations meant to salvage Biden’s ambitious plans for a $ 1.2 billion bipartisan infrastructure package and a larger $ 3.5 billion budget deal that would make investments unprecedented in social services.
Pelosi said the House would vote on Thursday on the infrastructure bill – which has already passed the Senate – but dozens of progressive Democrats have threatened to torpedo the measure, insisting they will vote against unless that they don’t vote on the most important budget bill first.
Additional reporting by Eric Platt, Andrew Edgecliffe-Johnson and Joshua Franklin in New York and James Politi in Washington
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