Deal raises debt limit for two years while capping some spending, but uncertainty remains on whether it can pass Congress.
US President Joe Biden and House Speaker Kevin McCarthy have reached a tentative deal to raise the federal government’s $3.4 trillion debt ceiling days ahead of a deadline to avert a potentially catastrophic default.
However, McCarthy described the deal on Saturday in terms that suggested it may not be absolute, and without any celebration – an indication of the bitter tenor of the negotiations, and the difficult path it has to pass through Congress before the United States runs out of money to pay its debts on June 5.
The Democratic president and the Republican speaker reached the agreement in principle after they held a 90-minute telephone call.
“I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people,” McCarthy said in a Twitter post.
The agreement would raise the debt limit for two years while capping spending over that time, and includes some extra work requirements for programmes for the poor, according to the Reuters news agency.
McCarthy later told reporters on Capitol Hill that “we still have more work to do tonight to finish the writing of it”.
He said he expects to finish writing the bill on Sunday, then speak to Biden and have a vote on the deal on Wednesday.
The deal will avert an economically destabilising default, so long as the president and the speaker succeed in passing it through the narrowly divided Congress before the Treasury Department runs short of money to cover all its obligations.
The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority.
Biden had for months refused to negotiate with McCarthy over future spending cuts, demanding that legislators first pass a “clean” debt-ceiling increase free of other conditions, and present a 2024 budget proposal to counter his issued in March.
Two-way negotiations between Biden and McCarthy began in earnest on May 16.
Republicans have pushed for steep cuts to spending and other conditions, including new work requirements on some benefit programmes for low-income Americans and for funds to be stripped from the Internal Revenue Service, the US tax agency.
They said they want to slow the growth of the US debt, which is now roughly equal to the annual output of the country’s economy.
Democrats meanwhile accused Republicans of playing a dangerous game of brinkmanship with the economy.
The long standoff spooked financial markets, weighing on stocks and forcing the US to pay record-high interest rates in some bond sales. A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.
The last time the nation got this close to default was in 2011, when Washington also had a Democratic president and Senate and a Republican-led House.
Congress eventually averted default, but the economy endured heavy shocks, including the first-ever downgrade of the US’s top-tier credit rating and a major stock sell-off.
