A preliminary agreement has been struck between U.S. President Joe Biden and senior congressional Republican Kevin McCarthy to increase the federal government's $31.4 trillion debt limit, breaking a months-long impasse, according to two sources familiar with the talks on Saturday.
According to two people with knowledge of the negotiations, the White House and House Republican negotiators have achieved a preliminary understanding to avoid a default on the nation's debt.
“However, I'm not confident that everything is resolved. They could have a short task or two to do. But it's near enough to proceed, according to the second source.
Earlier on Saturday night, Biden and McCarthy spoke on the phone for 90 minutes to go through the accord.
If the plan is approved by the closely divided Congress before the Treasury Department runs out of money to pay all of its commitments, which it warned would happen if the debt limit is not increased by June 5th, it will prevent an economically unsettling default.
The House of Representatives' Republican majority has pushed for drastic budget cuts as well as additional restrictions, such as adding new work requirements to certain assistance programmes for low-income Americans and taking money away from the Internal Revenue Service, the country's tax collection agency.
The U.S. debt, which is now almost equivalent to the yearly output of the nation's economy, is growing too quickly, they said, and they want to slow it down.
Negotiators have agreed to limit non-defense discretionary spending at 2023 levels for two years in return for raising the debt ceiling for a comparable time, sources told Reuters earlier. Exact terms of the final agreement were not immediately available.
Finding a deal that will pass muster with the Republican-majority House (222-213) and Democratic-majority Senate (51-49) would require delicate needle-threading on the part of both parties.
Financial markets were alarmed by the protracted deadlock, which hurt equities and had the US pay record-high interest rates in certain bond auctions. According to analysts, a default would have a far greater impact, perhaps causing the country to enter a recession, unsettling the global economy, and increasing unemployment.
For months, Biden refused to talk to McCarthy on future spending cuts, insisting that legislators adopt a “clean” debt-ceiling raise without any additional restrictions and then submit a competing budget plan for 2024 to challenge McCarthy's released in March. On May 16, Biden and McCarthy started their formal bilateral talks.
Democrats charged Republicans of engaging in risky economic brinksmanship. Republicans claim that recent increases in government spending are driving up the nation's debt, which is now about equivalent to the economy's yearly production.
The last time the country came dangerously close to defaulting was in 2011, when both the president and the Senate of Washington were Democrats and the House was under Republican control.
The economy suffered severe shocks, including the first-ever downgrading of the United States' top-tier credit rating and a significant market sell-off, before Congress was able to prevent default.
This time, House Speaker McCarthy bolstered his position by guiding the adoption of a package in April that combined $4.8 trillion in expenditure reductions with a $1.5 trillion increase in the debt limit. Even though the measure had little chance of succeeding in the Democratic-controlled Senate, McCarthy's ability to keep together his slender majority after just four months in the top leadership position was shown by its passage.
They still have much to accomplish. Before putting the bill up for a vote, McCarthy has committed to allow House members 72 hours to study it. That will demonstrate if the concessions in the plan have the backing of enough moderate lawmakers to overcome resistance from both hard-right Republicans and progressive Democrats.
Then it must be approved by the Senate, where it will need a minimum of nine Republican votes to pass. In each chamber along the road, there are several chances to sluggish the procedure.
