Oct. 16, 2013 9:04 a.m. ET
Senate leaders in both parties were putting the finishing touches on an agreement to temporarily raise the nation's debt ceiling and fully reopen the government as lawmakers raced to resolve their budget stalemate and calm anxious financial markets.
The expected Senate deal would avoid a potential U.S. debt default, but it would only set new deadlines for lawmakers to make decisions about the long-term course of fiscal policy.
As outlined by aides, the deal would fund federal agencies through Jan. 15 and extend the nation's borrowing authority through Feb. 7. A negotiating committee would be charged with devising plans for longer-term solutions.
Lawmakers have been hoping to pass legislation—or at least set Congress on a clear path to doing so—before Thursday, which many officials and investors view as a landmark moment. The Treasury says that on that day it will exhaust its emergency borrowing powers and be left with only about $30 billion to pay the nation's bills, enough to last for a week or two.
The Senate was scheduled to convene at noon Wednesday, but details of the plan could be announced before then, as aides to the chamber's Democratic and Republican leaders said lawmakers were close to reaching a final deal Tuesday night.
Several big questions hang over the deal. One is how quickly it can move through the Senate. Two tea-party-aligned senators, Republican Sens. Ted Cruz of Texas and Mike Lee of Utah, have employed delaying tactics in the past but haven't yet said what they will do now.
Another is how the deal will be received in the Republican-led House, where the GOP's most combative conservatives have stymied efforts by Speaker John Boehner (R., Ohio) to move legislation. Mr. Boehner has indicated he will bring to the floor whatever plan the Senate passes, even though it will have almost none of the policy goals conservatives have been demanding. Mr. Boehner is sure to need Democratic votes to approve the Senate measure, an awkward position for the chamber's Republican leader.
As outlined Tuesday by aides, the Senate agreement includes no major alterations to the 2010 health-care law. But the deal will include one minor change sought by Republicans, setting new procedures to verify the incomes of some people receiving government subsidies for health-insurance costs.
Negotiators had been considering a Democratic proposal to delay for one year a fee of $63 per insured person levied on groups that offer health policies, including employers, labor unions and insurance carriers—a fee opposed by many large employers and unions. Democratic aides said the deal also wouldn't include a GOP proposal to limit the Treasury Department's flexibility in managing the debt ceiling.
On Tuesday, last-minute protests from conservatives in the House created a day of delay and confusion in Congress's efforts to avoid a debt default, as Republican leaders failed to craft a budget proposal that could muster enough votes to pass.
In an embarrassing retreat for Mr. Boehner, House leaders had to cancel plans to bring a GOP bill to the floor for a vote Tuesday night.
New anxieties hit financial markets. The Dow Jones Industrial Average fell 133.25 points, or 0.87%, to 15168.01. Yields on some of the shortest-term Treasury securities rose to their highest levels in nearly five years as prices fell.
Late Tuesday afternoon, Fitch Ratings warned it could strip the U.S. of its top credit rating, in the latest sign of how the brinkmanship in Washington risks eroding markets' faith in U.S. institutions. The dollar slipped against the euro, yen and Swiss franc.
"We're being held hostage by the headlines," said John Lynch, Charlotte, N.C.-based regional chief investment officer with Wells Fargo Private Bank, which manages $170 billion. "What [the standoff] does is scare our clients.''
Failure of the House bill cleared the path for Senate leaders to finalize their compromise. It was unclear whether Congress would be able to finish the legislation before the Thursday target date set by the Treasury. Under Senate rules, a single senator could delay a final vote for days after it is filed. But the bill could pass the Senate as early as Wednesday if every senator agrees to expedited procedures.
For all the drama, the House legislation looked much like the Senate plan and, like the Senate proposal, was only a short-term fix. The House bill would have raised the debt limit through Feb. 7 and ended the 15-day government shutdown by funding federal agencies through Dec. 15.
Conservatives objected both to the Senate bill and Mr. Boehner's alternative because they gave Republicans too little of what they had been demanding—major changes in the 2010 health-care law and measures to reduce the deficit.
GOP leaders spent the afternoon seeking support for the bill.
They had tried to build backing by including proposals sought by conservatives, including one that would cut government health-insurance benefits for congressional and administration officials, including their staff, under the 2010 health-care law.
But that wasn't enough to win over the party's most conservative members, who said it didn't do enough to dismantle the health law.
The House GOP bill met powerful headwinds when the conservative political group Heritage Action on Tuesday evening announced its opposition and said votes on the measure would be included in the group's influential ratings of lawmakers.
Senators underscored the urgency of the situation as they waited for the House to act.
"We are 33 hours away from the possibility of the United States of America becoming a deadbeat nation by not paying its bills to its own people and other creditors,'' said Senate Appropriations Committee Chairman Barbara Mikulski (D., Md.).
Some large investors, including banks and money-market funds, have indicated they are shying away from Treasury bills maturing in the next month, amid fears of a default. The Treasury received fewer investor orders for each dollar of debt issued in two short-term auctions Tuesday than in previous sales.
Big financial firms are turning their attention to how short-term Treasury bills will be treated if the government temporarily delays making payments. Several banks that clear transactions for clients are putting in place mechanisms that would permit later settlement of any Treasurys due to mature Oct. 17.
Meantime, the $2.7 trillion money-market mutual-fund industry is asking the Securities and Exchange Commission whether such Treasury securities would remain eligible as collateral. The funds are required to have a certain level of liquid securities that can be easily converted into cash, and the companies want to know if defaulted Treasurys would count.
An SEC spokesman declined to comment.
On Tuesday, Citigroup Chief Financial Officer John Gerspach told reporters the bank no longer held any Treasurys that mature at or before Oct. 31.
In Congress, the path to a resolution of the stalemate became clouded when House Republicans on Tuesday objected to the compromise being drafted by Senate Majority Leader Harry Reid (D., Nev.) and Senate Republican Leader Mitch McConnell of Kentucky. Tuesday night, a Reid spokesman said the two men had resumed negotiations and were "optimistic that an agreement is within reach.''
Sen. Democratic Whip Dick Durbin (D., Ill.) said that negotiators were near a final agreement.
—Siobhan Hughes, Patrick O'Connor, Andrew Ackerman and Alexandra Scaggs contributed to this article.
Write to Janet Hook at [email protected] and Kristina Peterson at [email protected]
Senate leaders in both parties were putting the finishing touches on an agreement to temporarily raise the nation's debt ceiling and fully reopen the government as lawmakers raced to resolve their budget stalemate and calm anxious financial markets.
The expected Senate deal would avoid a potential U.S. debt default, but it would only set new deadlines for lawmakers to make decisions about the long-term course of fiscal policy.
As outlined by aides, the deal would fund federal agencies through Jan. 15 and extend the nation's borrowing authority through Feb. 7. A negotiating committee would be charged with devising plans for longer-term solutions.
Lawmakers have been hoping to pass legislation—or at least set Congress on a clear path to doing so—before Thursday, which many officials and investors view as a landmark moment. The Treasury says that on that day it will exhaust its emergency borrowing powers and be left with only about $30 billion to pay the nation's bills, enough to last for a week or two.
The Senate was scheduled to convene at noon Wednesday, but details of the plan could be announced before then, as aides to the chamber's Democratic and Republican leaders said lawmakers were close to reaching a final deal Tuesday night.
Several big questions hang over the deal. One is how quickly it can move through the Senate. Two tea-party-aligned senators, Republican Sens. Ted Cruz of Texas and Mike Lee of Utah, have employed delaying tactics in the past but haven't yet said what they will do now.
Another is how the deal will be received in the Republican-led House, where the GOP's most combative conservatives have stymied efforts by Speaker John Boehner (R., Ohio) to move legislation. Mr. Boehner has indicated he will bring to the floor whatever plan the Senate passes, even though it will have almost none of the policy goals conservatives have been demanding. Mr. Boehner is sure to need Democratic votes to approve the Senate measure, an awkward position for the chamber's Republican leader.
As outlined Tuesday by aides, the Senate agreement includes no major alterations to the 2010 health-care law. But the deal will include one minor change sought by Republicans, setting new procedures to verify the incomes of some people receiving government subsidies for health-insurance costs.
Negotiators had been considering a Democratic proposal to delay for one year a fee of $63 per insured person levied on groups that offer health policies, including employers, labor unions and insurance carriers—a fee opposed by many large employers and unions. Democratic aides said the deal also wouldn't include a GOP proposal to limit the Treasury Department's flexibility in managing the debt ceiling.
On Tuesday, last-minute protests from conservatives in the House created a day of delay and confusion in Congress's efforts to avoid a debt default, as Republican leaders failed to craft a budget proposal that could muster enough votes to pass.
In an embarrassing retreat for Mr. Boehner, House leaders had to cancel plans to bring a GOP bill to the floor for a vote Tuesday night.
New anxieties hit financial markets. The Dow Jones Industrial Average fell 133.25 points, or 0.87%, to 15168.01. Yields on some of the shortest-term Treasury securities rose to their highest levels in nearly five years as prices fell.
Late Tuesday afternoon, Fitch Ratings warned it could strip the U.S. of its top credit rating, in the latest sign of how the brinkmanship in Washington risks eroding markets' faith in U.S. institutions. The dollar slipped against the euro, yen and Swiss franc.
"We're being held hostage by the headlines," said John Lynch, Charlotte, N.C.-based regional chief investment officer with Wells Fargo Private Bank, which manages $170 billion. "What [the standoff] does is scare our clients.''
Failure of the House bill cleared the path for Senate leaders to finalize their compromise. It was unclear whether Congress would be able to finish the legislation before the Thursday target date set by the Treasury. Under Senate rules, a single senator could delay a final vote for days after it is filed. But the bill could pass the Senate as early as Wednesday if every senator agrees to expedited procedures.
For all the drama, the House legislation looked much like the Senate plan and, like the Senate proposal, was only a short-term fix. The House bill would have raised the debt limit through Feb. 7 and ended the 15-day government shutdown by funding federal agencies through Dec. 15.
Conservatives objected both to the Senate bill and Mr. Boehner's alternative because they gave Republicans too little of what they had been demanding—major changes in the 2010 health-care law and measures to reduce the deficit.
GOP leaders spent the afternoon seeking support for the bill.
They had tried to build backing by including proposals sought by conservatives, including one that would cut government health-insurance benefits for congressional and administration officials, including their staff, under the 2010 health-care law.
But that wasn't enough to win over the party's most conservative members, who said it didn't do enough to dismantle the health law.
The House GOP bill met powerful headwinds when the conservative political group Heritage Action on Tuesday evening announced its opposition and said votes on the measure would be included in the group's influential ratings of lawmakers.
Senators underscored the urgency of the situation as they waited for the House to act.
"We are 33 hours away from the possibility of the United States of America becoming a deadbeat nation by not paying its bills to its own people and other creditors,'' said Senate Appropriations Committee Chairman Barbara Mikulski (D., Md.).
Some large investors, including banks and money-market funds, have indicated they are shying away from Treasury bills maturing in the next month, amid fears of a default. The Treasury received fewer investor orders for each dollar of debt issued in two short-term auctions Tuesday than in previous sales.
Big financial firms are turning their attention to how short-term Treasury bills will be treated if the government temporarily delays making payments. Several banks that clear transactions for clients are putting in place mechanisms that would permit later settlement of any Treasurys due to mature Oct. 17.
Meantime, the $2.7 trillion money-market mutual-fund industry is asking the Securities and Exchange Commission whether such Treasury securities would remain eligible as collateral. The funds are required to have a certain level of liquid securities that can be easily converted into cash, and the companies want to know if defaulted Treasurys would count.
An SEC spokesman declined to comment.
On Tuesday, Citigroup Chief Financial Officer John Gerspach told reporters the bank no longer held any Treasurys that mature at or before Oct. 31.
In Congress, the path to a resolution of the stalemate became clouded when House Republicans on Tuesday objected to the compromise being drafted by Senate Majority Leader Harry Reid (D., Nev.) and Senate Republican Leader Mitch McConnell of Kentucky. Tuesday night, a Reid spokesman said the two men had resumed negotiations and were "optimistic that an agreement is within reach.''
Sen. Democratic Whip Dick Durbin (D., Ill.) said that negotiators were near a final agreement.
—Siobhan Hughes, Patrick O'Connor, Andrew Ackerman and Alexandra Scaggs contributed to this article.
Write to Janet Hook at [email protected] and Kristina Peterson at [email protected]