BIDEN, MCCARTHY HAVE REACHED A DEBT-LIMIT DEAL IN PRINCIPLE

Joe Biden and Kevin McCarthy, the Republican speaker of the House, have tentatively agreed to raise the U.S. federal government's debt ceiling of $31.4 trillion, just before the looming deadline for a potential default. McCarthy shared the news on Twitter, stating that he had recently spoken with the president and they had reached an agreement in principle that they believed was suitable for the American people. The agreement was the result of a 90-minute phone call between Biden and McCarthy on Saturday evening.

According to reports, the deal is expected to raise the debt limit for two years, effectively avoiding any further standoffs until after the 2024 presidential election. However, the agreement still needs to be approved by the divided Congress. Given the Republicans' narrow majority in the House, McCarthy will likely require some support from Democratic members to secure the proposal's passage.

This deal will prevent an economically destabilizing default, which the Treasury Department had warned would occur if the debt ceiling wasn't raised by June 5. The Republican-controlled House of Representatives has been advocating for significant spending cuts and a reduction in funding for the Internal Revenue Service (IRS), the U.S. tax agency.

One of the major sticking points in the negotiations was the Republican push to increase work requirements for recipients of federal aid programs like food stamps, a goal that many Democrats strongly oppose. While specific details of the final agreement are not immediately available, sources had previously indicated that negotiators had agreed to cap non-defense discretionary spending at 2023 levels for two years in exchange for a debt ceiling increase over a similar period.

The challenge ahead lies in navigating a compromise that can successfully pass the House, where Republicans hold a 222-213 majority, and the Senate, where Democrats hold a narrow 51-49 majority. The prolonged standoff has had negative impacts on financial markets, leading to stock market declines and record-high interest rates on some bond sales. Economists warn that a default would have severe consequences, likely pushing the nation into a recession, affecting the global economy, and causing a rise in unemployment.

Biden had initially refused to negotiate with McCarthy on future spending cuts, insisting that lawmakers first pass a "clean" debt ceiling increase without additional conditions and present a 2024 budget proposal to address the issue. However, negotiations between Biden and McCarthy commenced on May 16.

Democrats have accused Republicans of playing a dangerous game with the economy, while Republicans argue that increased government spending is driving the growth of U.S. debt, which now amounts to approximately the annual economic output.

McCarthy has pledged to provide House members with 72 hours to review the legislation before it is brought to the floor for a vote. This will test whether enough moderate members support the compromises in the bill to overcome opposition from both staunch conservatives and progressive Democrats. Afterward, the bill will need to pass the Senate, where it will require at least nine Republican votes to succeed. Throughout the process, there are multiple opportunities in each chamber to potentially slow down the progress.

tastytrade logo+
Get the best broker for options trading and earn Unusual Whales discounted! in cash with an eligible account deposit at tastytrade. Get an Unusual Whales bonus when you deposit $2000. Offer expires 3/31/25. Certain restrictions, terms and conditions apply.
Unusual Whales does not confirm the information's truthfulness or accuracy of the associated references, data, and cannot verify any of the information. Any content on this site or related pages are not intended to provide legal, tax, investment or insurance advice. Unusual Whales Inc. is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) or any state securities regulatory authority. Nothing on Unusual Whales should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Unusual Whales or any third party. Options, investing, trading is risky, and losses are more expected than profits. Please do own research before investing. Please only subscribe after reading our full terms and understanding options and the market, and the inherent risks of trading. It is highly recommended not to trade on this, or any, information from Unusual Whales. Markets are risky, and you will likely lose some or all of your capital. Please check our terms for full details.
Any content on this site or related pages are not intended to provide legal, tax, investment or insurance advice. Unusual Whales Inc. is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) or any state securities regulatory authority. Nothing on Unusual Whales should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Unusual Whales or any third party. Certain investment planning tools available on Unusual Whales may provide general investment education based on your input. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation. See terms for more information.