US officials agree deal ‘in principle’ to raise country’s debt limit in last-minute dash to avoid a default
- Joe Biden and Kevin McCarthy announce agreement
- Biden says deal represents a ‘compromise’
- McCarthy: Agreement contains ‘historic reductions in spending’
US officials have agreed a deal ‘in principle’ to raise the country’s debt limit in a last-minute dash to avoid a default.
President Joe Biden and the Republican Speaker of the House of Representatives, Kevin McCarthy, announced an agreement following weeks of difficult negotiations and stalemate.
In a statement, Biden said the deal represented a ‘compromise’ but was ‘an important step that reduces spending while protecting critical programmes for working people and growing the economy.’
McCarthy said the agreement contained ‘historic reductions in spending’ as well as ‘reforms that will lift people out of poverty and into the workforce.’
Exact details are unconfirmed but it is thought to contain a provision to raise the US debt limit for two years from its current level of £25trillion to prevent standoffs before next year’s presidential election.
Negotiators have also agreed to cap non-defence discretionary spending, which is used to fund government services, at 2023 levels for two years.
It would also mean the US government would avoid running out of cash, with officials having until June 5 to approve more borrowing or else risk a default and chaos in the markets.
But the agreement faces a major hurdle when it heads to the US Congress for a vote expected on Wednesday.
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The Congress is split between the Republican-controlled House and the Democrat Senate, meaning any vote is likely to be fiercely contested.
Some Republican lawmakers have pushed for McCarthy to propose even steeper cuts to spending as a price for raising the debt limit.
Signs of dissent in the ranks were evident in the early hours of yesterday when Republican congressman Bob Good, a supporter of former president Donald Trump, wrote on Twitter that ‘no one claiming to be a conservative’ could justify supporting the deal.
But news of a possible breakthrough is likely to soothe nerves in financial markets, with the standoff having weighed on stocks, forcing the US to pay record-high interest on some of its loans.
Analysts have warned a US debt default could cause even worse economic damage, likely pushing it into recession, resulting in a spike in unemployment and sending shockwaves across the world.
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