Joe Biden and Kevin McCarthy achieve an ‘agreement in principle’ regarding the U.S. debt ceiling

House Speaker Kevin McCarthy announces that he and President Joe Biden have reached a tentative agreement, aiming to swiftly address the impending debt crisis and impose restrictions on federal spending.

The deal, intended to increase the current $31.4 trillion ($48 trillion) debt ceiling, would bring an end to the prolonged impasse. However, it carries the potential to provoke dissatisfaction from both Democrats and Republicans due to the compromises made during negotiations.

“We still have a lot of work to do, but I believe this is an agreement in principle that’s worthy of the American people,” Mr McCarthy stated.

“It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach, there are no new taxes, no new government programs, there’s a lot more within the bill.”

Mr Biden and Mr McCarthy held a 90-minute phone call earlier on Saturday evening (local time) to discuss the deal.

“The agreement represents a compromise, which means not everyone gets what they want,” Mr Biden said in a statement late on Saturday night (local time).

“That’s the responsibility of governing.”

According to President Biden, the agreement brings positive outcomes for the American people as it averts a potential catastrophic default that could have resulted in an economic recession, significant damage to retirement accounts, and the loss of millions of jobs. 

The deal’s success hinges on successfully passing it through the closely divided Congress before the Treasury Department exhausts its funds to fulfil all financial obligations. 

The Treasury Department had issued a warning on Friday, indicating that this situation would occur if the debt ceiling was not raised by June 5.

The protracted deadlock over raising the $31.4 trillion debt ceiling has already created unease in financial markets, leading to a decline in stocks and compelling the United States to pay historically high interest rates during certain bond sales. Last week, credit ratings agency Fitch Ratings placed the top-ranked US credit on a negative watch.

The optimism in the futures markets of the US indicates some positivity regarding the agreement. However, Mr. Cantor cautioned that significant developments still need to occur on Capitol Hill in the forthcoming days before the deal is ultimately finalised.

“The agreement has yet to materialise. The specifics and negotiations play a crucial role. There will be substantial activity in both parties over the next week.”

“This period presents an opportunity for both sides to comprehend that reform is possible, given the limited incentive or opportunity for such reforms in our political system.”

For now, the markets are well up.

The ES (S&P 500 futures):

The NASDAQ (Futures):

Bitcoin (BTC):

Will be a very interesting watch to see if the markets can continue this push, or if these pumps get reversed.

Keep your eyes peeled for CPI data release on the 13th of June, 2023 (US time), as well as the prevailing FOMC meeting.