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US congress in race to pass debt ceiling deal

Biden McCarthy - Saul Loeb/AFP
Biden McCarthy - Saul Loeb/AFP

US congressional leaders are racing to avert a default on the nation’s debts this week after a major breakthrough in budget talks between Joe Biden and the Republicans.

The President on Saturday reached a deal with Kevin McCarthy, the Republican speaker of the House of Representatives, which would raise the limit on federal government borrowing while implementing a range of spending cuts.

But to avoid a default next Monday, lawmakers still need to pass legislation in the House and the Senate, which are both governed by parties with wafer-thin majorities.

Already, key figures from both Mr Biden’s Democratic party and the Republicans have voiced anger over the concessions each side will need to make to pass a bill.

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In a warning shot, Chip Roy, a Republican member of the House, tweeted: “I do not like the ‘deal’ as I understand it from the cheerleading so far… I will have more to follow once I see more details.”

A failure to pass legislation in time would risk disaster for global markets, experts have warned.

If lawmakers do not raise the debt ceiling – which is currently set at $31 trillion (£25 trillion) – the US would be forced to default on its debt payments, potentially resulting in a worldwide recession.

Janet Yellen, the US Treasury Secretary, has warned that the US will default on June 5 unless action is taken. She urged lawmakers to act quickly following Saturday’s deal.

Mr Biden insisted that the agreement reached with Mr McCarthy represented “a compromise, which means not everyone gets what they want”.

Mr McCarthy added: “I believe this is an agreement in principle that’s worthy of the American people.”

A draft text of the agreement in legislative form was due to be published on Sunday, with Mr McCarthy saying he expected to bring it to a vote on the House floor as soon as Wednesday.

It is thought that the Senate, which is narrowly controlled by the Democrats, could consider it later in the week.

Central to the agreement is a two-year budget deal that would hold spending flat for 2024 and increase it by 1pc for 2025, in exchange for raising the debt limit for two years, pushing the volatile political issue past the next presidential election.

The agreement would impose stricter age limits on people claiming jobless benefits from the governmen, but Biden was able to secure waivers for veterans and the homeless.

The two sides also agreed on an ambitious overhaul of federal permitting rules to speed up construction of energy projects.

Now attention will be focused on getting the deal passed in both legislative chambers, so it can be signed into law by the President.

McCarthy commands only a slim Republican majority in the House, powered by hard-right conservatives who may resist any deal as insufficient as they try to slash spending.

By compromising with Democrats for votes, he risks losing support from his own rank-and-file, setting up a career challenging moment for the new speaker, who took over the gavel in January.

Lawmakers need to act fast. On Wall Street, investors have become nervy about a possible default and last time such a crisis was narrowly averted in 2011 the fiasco led to a downgrade in the US credit rating.

Ralph Norman, another House Republican, tweeted: “This ‘deal’ is insanity. A [$4 trillion] debt ceiling increase with virtually no cuts is not what we agreed to.

“Not gonna vote to bankrupt our country. The American people deserve better.”

Mr McCarthy told Fox News: “Maybe it doesn’t do everything for everyone. But this is a step in the right direction that no one thought we would be at today.

“This is a good bill for the American public.”