Bloomberg News reports the Senate has passed the legislation to suspend the US debt ceiling. It will also help in curtailing government spending through the elections of 2024, thereby arresting the drama that was threatening to lead to a financial crisis globally.
The Deal – What next?
The deal worked out will now be referred to President Joe Biden for his signature. It was chalked after an intense discussion between the House Speaker Kevin McCarthy and the President. President Joe Biden is to sign the deal just days before the country emerges from default. Moderates belonging to both parties carried the 63-36 vote on the bill. Many expressed their misgivings about some portions of the deal.
What about the investors?
Investors have finally settled on the chances of US default but continue to focus on other uncertainties like the Federal Reserve policy. On Friday, the benchmark Treasuries were found trading at a lower edge. On the other hand, the region’s equities were found following the US benchmarks amidst continuing strength in the tech stocks.
How did the deal take shape?
After weeks of working out a deal that proved to be tough, were arrived at following private talks and much speculation. It took nearly hours of negotiations to arrive at the deal between independent Senator Kirsten Sinema and the Democrats.
Senate passage stops the worst impasse related to the US debt in many years. However, it is coming at a political cost for McCarthy and Biden aside from having drawn flak from the lawmakers.
Impact of the bill
Bloomberg News reports that the bill that has been passed will set a path for federal spending for the forthcoming two years. It would suspend the debt ceiling until January 2025, deferring another confrontation over borrowing until the presidential election.
The spending restraint in the deal may impact college graduates as they must resume payments for student loans. But only some low-income American households would face service cuts or benefit restrictions.
The agreement is a two-year spending cap and will temporarily blow the economy, which is already striving hard to combat the recession, as written by Anna Wong and Maieva Cousins, who are Bloomberg Economists, on Tuesday. However, the unsustainable medium-term trajectory related to US Federal debt will not have a dent. There is anticipated to be a surge in US Federal debt from 97% of GDP in 2022 to approximately 130% of GDP by 2033.
