Debt-limit deal reached to avert US default
Economists warned even a short default could see dramatic market declines
White House and Republican negotiators have reached a tentative deal to raise the US debt ceiling and avert a default that threatened to send tremors through the global economy.
President Joe Biden and House Speaker Kevin McCarthy, who sealed the deal during a 90-minute phone call late on Saturday, must now shepherd the framework deal — reached after weeks of bitter discussions — to final legislative passage over the objections of hardliners in both parties.
McCarthy said he will talk with Biden again and line the bill up for a vote on Wednesday.
“We still have a lot of work to do, but I believe this is an agreement in principle that is worthy of the American people,” McCarthy told reporters at the Capitol.
How it works
The deal includes a two-year debt limit increase and a twoyear appropriations agreement that keeps non-defense spending roughly flat with current levels.
Economists warned even a short default could see dramatic market declines and the loss of hundreds of thousands of jobs. On May 24, Fitch Ratings placed the US’s AAA credit rating on watch in a move that reflected the mounting concerns the US would go over the brink.
The agreement doesn’t create work requirements for Medicaid recipients. But it does place time limits on the food assistance programme known as SNAP up to age 54, a measure that House Republicans pushed for. Those would be phased out by 2030, however.
For McCarthy, scepticism that he would be able to negotiate an agreement given his razor-thin advantage in the House has hung over the speakership he won early this year.
Biden sidesteps the biggest threat to the post-pandemic economic recovery as he seeks a second term. Yet meeting some GOP demands also risks alienating progressives he needs to propel his reelection campaign.
There’s little margin for error, with Treasury Secretary Janet Yellen warning that an extension must be finalised by June 5 to avoid a historic default that would send borrowing costs soaring.