By Trevor Hunnicutt and Jeff Mason
WASHINGTON (Reuters) -President Joe Biden and Republican House Speaker Kevin McCarthy held initial talks on Wednesday about raising U.S. government borrowing limits in a first test of how the two will work together, with both sides agreeing to talk more.
The White House said after the meeting that Biden told McCarthy he was eager to work with Republicans "in good faith." McCarthy said the two men could find common ground. But, as expected, there was no sign of an immediate breakthrough.
"The president and I had a good first meeting," McCarthy told reporters after the more-than-hour-long meeting. He said the two men shared their perspectives with each other. "I think at the end of the day, we can find common ground," he said.
The Democratic president and Republicans, who won control of the U.S. House of Representatives in November's elections, are locked in a standoff over raising the federal government's $31.4 trillion U.S. debt ceiling. Failing to do so would put the world's largest economy on a path to default.
"President Biden made clear that, as every other leader in both parties in Congress has affirmed, it is their shared duty not to allow an unprecedented and economically catastrophic default," the White House said in a statement. "It is not negotiable or conditional."
The Oval Office talks may serve as the opening bell for months of back-and-forth maneuvering. Neither side expected a solution to emerge from a single meeting. Without action, the government could lose its ability to pay all its bills as early as June.
McCarthy expressed optimism that such a scenario could be avoided.
"I believe if we're able to get to an agreement, we could have a funding agreement for the next two years," McCarthy said. "I told the president I would like to see if we can come to an agreement long before the deadline."
Biden has said he wanted to see McCarthy's budget plan. "Show me his budget!" he told reporters on Tuesday when asked if he would negotiate with the House leader.
The White House said Biden was open to talks about deficit reduction untethered to the debt ceiling debate. "The president welcomes a separate discussion with congressional leaders about how to reduce the deficit and control the national debt while continuing to grow the economy," it said.
House Republicans want to use the debt ceiling as leverage to exact cuts, though they have yet to unite around a specific plan. The increase covers the costs of spending programs and tax cuts previously approved by Congress, and is usually approved on a bipartisan basis.
CONTRASTS
The 80-year-old president, a longtime former senator who served as vice president during a similar 2011 showdown that led to a historic downgrade of the federal government's credit rating, enters the talks with what some of his aides believe is a strong hand that includes a narrow Senate majority, a party that is unified on this issue and a strong message for voters.
Speaker for less than a month, McCarthy, 58, leads a fractious House Republican caucus with a narrow 222-212 majority that has given a small group of hardline conservatives outsized influence.
Despite years of mingling with other Washington lawmakers, Biden has little personal history with McCarthy, who joined the Republican leadership on Capitol Hill under former Speaker John Boehner after Biden had already left to become Barack Obama's vice president.
Just one in four Republicans serving in the House today held their seats in 2011, and some may not be fully aware of the risks of courting default, or the difficulties of negotiating in a divided government.
Congress has often imposed conditions on debt ceiling hikes, or paired them with other tax and spending activity.
U.S. DEBT IS DIFFERENT
Unlike most other developed countries, the United States puts a hard limit on how much it can borrow, and Congress must periodically raise that cap because the U.S. government spends more than it takes in.
Shortly before the White House meeting, Federal Reserve chair Jerome Powell told reporters: “There is only one way forward here and that’s for Congress to raise the debt ceiling.
"No one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner," Powell said.
The 2011 crisis was resolved with a bipartisan deal that cut spending and raised the debt limit but left Obama administration officials smarting. Many felt they had given up too much and had still harmed the economy by letting talks persist.
McCarthy has less room to maneuver than his Republican counterpart in 2011 did.
To win the speaker's gavel, he agreed to enable any single member to call for a vote to unseat him, which could lead to his ouster if he seeks to work with Democrats. He also placed three hardline conservatives on the Rules Committee, which would allow them to block any vote on a compromise.
Biden seemed to question McCarthy's ability to keep Republicans in line at a fundraiser in New York on Tuesday, calling McCarthy "a decent man, I think," but noting the concessions he made to become speaker.
McCarthy, for his part, has said Biden needed to be willing to make concessions to get a debt-ceiling increase through Congress, saying it would be "irresponsible" not to negotiate.