The ongoing issue on the US debt ceiling continues to grip markets. On Monday, Treasury Secretary Janet Yellen reiterated her warnings that a default could occur as early as June 1 if there is no agreement made. A bipartisan political center and the Congressional Budget Office supported these statements. There is also a risk that if a deal is not reached by June 1, US President Joe Biden will invoke the 14th Amendment.
Biden, who initially has plans to visit Papua New Guinea and Australia after the G7 meeting, announced that he will cut his trip and return to the States directly. This plan is likely what influenced the optimistic tone and statements by all parties immediately after the second debt ceiling meeting concluded. House Speaker Kevin McCarthy even said that a deal could be reached this week even though both sides are still far apart. He explained that a two-part agreement could be made. The first part is a short-term extension, after which more extensive negotiations can take place later.
Senate Majority Leader Chuck Schumer agrees with this view, adding that several more officials could join the discussions. Later, the White House announced that the President would assign two of his main advisors to negotiate a debt deal with Republicans.
The foundation of this newly found optimism to avoid a US default lies in a short-term extension. Since Republican and Democrat ideologies remain so far apart, a short-term extension is the only way to reach an agreement by the end of the week. After all, it is a kind of bilateral negotiation, consisting of short-term solutions, followed by more detailed negotiations.