The US Senate passed legislation to suspend the US debt ceiling and impose restraints on government spending through next year’s presidential election, ending a drama that threatened a global financial crisis.
The measure would next go to US President Joe Biden, who forged the deal with US House of Representatives Speaker Kevin McCarthy and plans to sign it days ahead of a looming US default.
The 63-36 vote on the bill was carried by moderates in Republican and Democratic parties, many of whom aired their misgivings about parts of the deal, but were convinced that their concerns were not worth risking the havoc a default would unleash.
Photo: EPA
“If we do this we will not default,” US Senate Majority Leader Chuck Schumer said before the vote. “That is very, very important.”
Investors have largely judged the risk of a US default as resolved and are shifting attention to other uncertainties, such as the US Federal Reserve policy.
Benchmark Treasuries dipped in Asia trading yesterday, while equities in the region followed US benchmarks higher amid continued strength in tech shares.
A hard-fought compromise reached after weeks of private talks and public finger-pointing, the legislation is a rarity in a highly polarized Washington, where dealmaking has become a lost art form.
Getting it through the Senate on Thursday night took hours of negotiations between the two parties, with independent US Senator Kyrsten Sinema shuttling in designer sneakers between Republicans lunching on the second floor of the Capitol and Democrats on and off the Senate floor.
Ultimately, they settled on allowing uncharacteristically speedy votes on 11 amendments — all of which failed — and a pair of statements from Schumer aimed at soothing concerns about defense spending and other potential cuts.
Schumer said that the Senate could bypass the spending caps in the bill for Ukraine, defense and domestic priorities using emergency funding, but the Republican-controlled House would have to concur.
Senate passage ends the worst standoff over the US debt in a dozen years.
However, it comes at some political cost for Biden and McCarthy, who have taken fire from lawmakers on their respective party’s flanks who insist that too much was given away in the negotiations.
The right-wing House Freedom Caucus intensified its criticism of McCarthy after more Democrats voted for the bill in the House than Republicans. Caucus members would meet next week to discuss their next steps, which could include an effort to oust McCarthy.
For Biden, the vote risks alienating well-known progressives ahead of a re-election campaign, in which he would rely on them to rev up enthusiasm and stump for him among critical constituencies.
However, Biden is not facing a serious primary challenge from the left, and the deal averts an economic upheaval heading into his re-election bid.
It would also strengthen his reputation for pragmatism and working across party lines.
The bill would set the course for federal spending for the next two years, and suspend the debt ceiling until Jan. 1, 2025 — postponing another clash over borrowing until after the presidential election.
In exchange for Republican votes for the suspension, Democrats agreed to cap federal spending for the next two years. The bill also green-lights Equitrans Midstream’s stalled Mountain Valley Pipeline in West Virginia.
Spending restraints in the deal could affect college graduates who would have to resume student loan payments, and some lower-income Americans hit with benefit restrictions or service cuts.
Bloomberg economists on Tuesday said that the two-year spending caps called for in the agreement “will deal an additional short-term blow to an economy already vulnerable to a recession. Yet they’ll barely dent the unsustainable medium-term trajectory of US federal debt — which we estimate is still on track to rise from 97 percent of GDP in 2022 to more than 130 percent of GDP by 2033.”
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