White House strikes deal with Republicans to prevent US debt default

US President Joe Biden has struck a deal with Republican House Speaker Kevin McCarthy that would avert debt default as early as June and provide relief to the global economy and financial markets.

Biden and McCarthy reached an agreement in principle on Saturday after tense, round-the-clock talks between the White House and Capitol Hill that sought to break Washington’s fiscal impasse.

The deal would extend the US’s $13.4tn borrowing limit for two years, until after the next presidential election in late 2024, and include a cap on government spending over the same period.

But the compromise legislation still needs to pass both chambers of Congress in the coming weeks, and is likely to face resistance from some lawmakers in both the Republican and Democratic parties.

Until then, there will still be uncertainty over the possibility of a default in the world’s largest economy that could roil markets around the world, raise borrowing costs and jolt labor markets. US Treasury Secretary Janet Yellen has warned that the US risks defaulting as early as June 5.

The agreement was sealed after a phone conversation between Biden and McCarthy on Saturday evening. Biden was at his Camp David presidential retreat in Maryland, while McCarthy remained in Washington to oversee the talks. During the day, the speaker, along with his chief negotiators as well as party whips, is responsible for counting and marshalling votes when bills are placed on the floor of the House.

The biggest risk to the passage of the deal through Congress is a potential rebellion from the right wing of the Republican Party closest to former President Donald Trump. There were already signs of unrest and anger.

Dan Bishop, a North Carolina legislator, tweeted on Saturday that it would be a “war” if McCarthy rolls back the debt-limit increase that protects Biden in the 2024 presidential race. McCarthy would need the support of some Democrats for the bill to have a majority, but it is unclear how many would support it.

The showdown over the debt ceiling will not only have economic and financial implications, but could also have ramifications in the race for the White House in 2024. Top contender for the Republican nomination.