US President Joe Biden struck a deal with Kevin McCarthy, the Republican Speaker of the House, that would avert a looming debt default in early June and ease the global economy and financial markets.
Biden and McCarthy reached a tentative agreement on Saturday after days of tense, round-the-clock negotiations between the White House and Capitol Hill that sought to break the financial standoff plaguing Washington.
The deal will raise the US borrowing limit of $13.4 trillion for two years, even after the next presidential election in late 2024, and will include caps on government spending over the same period.
But the compromise legislation still needs to pass both houses of Congress within the next week, and is likely to face resistance from some lawmakers in both the Republican and Democratic parties.
Until then, there will remain uncertainty about the possibility of a downturn in the world’s largest economy that could roil markets, raise borrowing costs and hit labor markets around the world. Janet Yellen, US Treasury Secretary, warned that the US risks defaulting on June 5.
In a statement released Saturday night, Biden urged the House and Senate to approve the deal “immediately.”
The agreement represents a compromise, which means that not everyone gets what they want. “This is the responsibility of the referee,” said the president.
“And this agreement is good news for the American people, because it prevented what could have been a catastrophic default and would have led to a recession, ruined retirement accounts, and lost millions of jobs.”
The deal was sealed after Biden and McCarthy spoke on the phone Saturday night. Biden was at the Camp David presidential retreat in Maryland, while McCarthy remained in Washington to oversee negotiations. Throughout the day, the Speaker would meet with the chief negotiators as well as the party whips responsible for counting and mustering the votes when the bill was brought to the floor of the House.
“I think this is an agreement in principle that the American people deserve,” McCarthy told reporters at the Capitol before lawmakers were briefed on the deal. He added that he expected the text of the legislation to be published on Sunday and put to a vote on Wednesday.
He added, “It has historic spending cuts, and subsequent reforms that will lift people out of poverty into the work force (and) rein in government influence.”
The biggest risk to the deal passing through Congress is a potential rebellion from the right wing of the Republican Party closest to former President Donald Trump. There were already signs of turmoil and anger.
Dan Bishop, a North Carolina lawmaker, tweeted Saturday that it would be “war” if McCarthy reinstated the debt limit increase that would protect Biden in the 2024 presidential race. McCarthy would need the support of some Democrats in order to get a majority for the bill, but It is not clear how many will support him.
The confrontation over the debt ceiling will not only have economic and financial implications. It could also reverberate in the race for the White House. Biden has already launched his re-election campaign, while Trump and Ron DeSantis, the governor of Florida, are the top contenders for the Republican nomination.
A person familiar with the talks said the deal would keep non-defense spending roughly flat in fiscal 2024, with a 1 percent increase in 2025, with no further constraints after that. Republicans had initially pushed for deeper spending cuts over a decade.
One of the biggest sticking points in the talks has been the Republicans’ demand to ramp up labor requirements for social safety net programs, especially food aid for low-income individuals. A copy of this measure was part of the deal, setting time limits for recipients up to the age of 54.
But Biden secured a cut for the homeless and veterans, and made sure the new work requirements weren’t permanent. The interim deal also includes a provision designed to speed up environmental reviews.
The US Chamber of Commerce, the largest lobbying group for American business, welcomed the agreement, urging members of Congress to pass it into law.
Americans deserve effective government. “With news of a deal to avert a debt-ceiling crisis, the President and congressional leaders have demonstrated that they can meet on a bipartisan basis and act in the best interests of our country,” said Chamber CEO Susan Clark.