A Congressional vote on raising the United States Debt Ceiling could come as early as Wednesday (31 May) after the House Republican Leadership and the White House announced a deal over the weekend. Democratic President Joe Biden and Republican House Speaker Kevin McCarthy reached agreement on Sunday on a deal to raise the nation’s $31.4 trillion borrowing limit in return for some caps on government spending and other policy changes.
The legislation would need to be approved by both Houses of Congress in the days ahead in order to avert a historic U.S. default, with global implications, which the Treasury Department has warned could come as early as June 5th.
With the leadership of both parties appearing to find each other over the weekend, there is concern now about keeping both the Republican and Democratic caucuses in line with Biden calling it an important step forward.
“It takes the threat of catastrophic reform off the table, protects our hard earned and historic economic recovery. And the agreement also represents a compromise, which means no one got everything they want. But that’s the responsibility of governing. And this deal is good news for I believe you’ll see for the American people. The agreement prevents the worst possible crisis and a default for the first time in our nation’s history. An economic recession. Retirement accounts devastated. Millions of jobs lost. It also protects key priorities and accomplishments and values that congressional Democrats and I have fought long for, long and hard for,” says Biden.
The positive sentiment was echoed by the top Congressional Republican Speaker, Kevin McCarthy.
“After weeks of negotiations, we have come to an agreement in principle. We still have a lot of work to do, but I believe this is an agreement in principle that’s worthy of the American people. It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach, there are no new taxes, no new government programs, there’s a lot more within the bill. We still have more work to do,” says McCarthy.
Global economic downturn
The growing concern, that if the legislation does not pass expeditiously, owning to dissatisfaction within the far right and far left caucuses of both parties, a default would trigger a global economic downturn, stock market dives and jobs losses among other negatives.
“The most important thing to recognise is that we must raise the debt ceiling. There isn’t any outcome that is acceptable. We will default on some obligation and that’s really not an acceptable state of affairs. It threatens the strong recovery that we have in the U.S. economy, it threatens financial markets, and we simply have to raise the debt ceiling,” says Janet Yellen, Treasury Secretary.
As financial analysts keep a close eye on progress in Washington, the Chief Portfolio Manager at Winthrop Capital Markets, Adam Coons explains:
“Just because you miss a payment doesn’t mean that you’re not going to pay the entire thing. And so I think it’s important for investors to remember is that a missed payment doesn’t mean that you’re not going to get your money back. You will. So, that’s the first thing that we’re just putting investors at ease, that this is not the apocalypse. This is, you know, political posturing that is going to impact markets, absolutely, because uncertainty impacts markets. So, that’s what you’re feeling and seeing right now is just this heightened volatility on the heels of uncertainty.”
The focus now for political leadership in Washington is ensuring that enough lawmakers from both parties support the package to ensure its passage with both Republicans and Democrats expected to lose votes due to unhappiness with certain compromises made therein.
And with the clock ticking towards the June 5th deadline, holding the centre in both parties could prove just enough to get the process across the finish line before the end of the week.
