Home Finance US debt-cap pact is being judged by hushed voices; markets oblige

US debt-cap pact is being judged by hushed voices; markets oblige

A small group of Republican lawmakers from the hard-right wing have announced their opposition to a proposed agreement to increase the United States’ debt ceiling, signalling potential obstacles for the bipartisan deal as it navigates through Congress before the country runs out of funds next week.

Although the opposition was anticipated, it highlights the challenges that Democratic President Joe Biden and Republican leader Kevin McCarthy will face in securing approval from both the Republican-controlled House of Representatives and the Democratic-controlled Senate.

Ron DeSantis, the Governor of Florida and a potential candidate for the 2024 Republican presidential nomination, criticized the deal, arguing that it fails to address the country’s fiscal trajectory.

In an interview with Fox News, he stated, “After this deal, our country will still be careening toward bankruptcy.”

Nonetheless, proponents of the agreement remain confident that it will pass Congress before the United States exhausts its funds, an event projected by the Treasury Department to occur on June 5.

Republican Representative Dusty Johnson expressed certainty that the bill would be successful, stating that he had conversed with numerous fellow lawmakers who were supportive of the proposal.

President Biden also expressed optimism, mentioning his efforts in lobbying for support. When asked about the bill, he told reporters, “It feels good. We’ll see when the vote starts.”

The 99-page bill aims to suspend the debt limit until January 1, 2025, enabling lawmakers to defer the politically sensitive issue until after the presidential election in November 2024.

Additionally, it includes caps on certain government expenditures over the next two years.

A crucial test awaits on Tuesday, as the House Rules Committee is scheduled to review the bill, marking the necessary initial step before a vote in the full House. While the panel typically aligns closely with House leadership, McCarthy had to accommodate some sceptical conservatives in order to secure his position as Speaker.

One of those conservatives, Representative Chip Roy, publicly declared his lack of support for the bill, criticizing it on Twitter for resulting in “$4 trillion in debt for – at its prime – a two-year expenditure halt and no serious substantive policy reorganizations.”

Another member of the panel, Ralph Norman, has also voiced his opposition to the agreement.

McCarthy, however, expressed confidence in the package’s prospects within the committee when speaking to reporters on Monday.

In the Senate, Republican Senator Mike Lee has also opposed the bill, indicating a potentially difficult vote in a chamber where any member can delay action for several days.

With Democrats holding a slim majority of 51-49, passage in the Senate remains uncertain.

McCarthy has predicted that the bill will receive the support of the majority of his Republican colleagues, who hold a slim majority in the House with a 222-213 margin.

House Democratic Leader Hakeem Jeffries expects backing from his side as well, although some progressive Democrats may still vote against it.

Representative Raul Grijalva, a progressive Democrat, expressed disappointment on Twitter over the bill’s changes to environmental regulations, referring to them as “disturbing and profoundly disappointing.”

Grijalva’s concern stems from a provision in the bill that aims to expedite the permitting process for certain energy projects.

The bill also intends to reclaim unused COVID-19 funds and impose stricter work requirements for food assistance programs targeting low-income Americans.

Furthermore, the bill would redirect some funding away from the Internal Revenue Service, though White House officials assert that enforcement efforts will not be undermined in the near term.

Initial reactions from financial markets have been positive, as a failure to meet payment obligations on U.S. securities, which form the foundation of the global financial system, would result in significant disruptions.

However, some investors remain cautious about the spending cuts included in the deal, fearing potential impacts on U.S. economic growth.

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