Washington: A divided US House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling on Wednesday, with majority support from both Democrats and Republicans to overcome opposition led by hardline conservatives and avoid a catastrophic default.
The Republican-controlled House voted 314-117 to send the legislation to the Senate, which must enact the measure and get it to President Joe Biden's desk before a Monday deadline, when the federal government is expected to run out of money to pay its bills.
"This agreement is good news for the American people and the American economy," Biden said after the vote. "I urge the Senate to pass it as quickly as possible so that I can sign it into law." The measure, a compromise between Biden and House Speaker Kevin McCarthy, drew opposition from 71 hardline Republicans.
That would normally be enough to block partisan legislation, but 165 Democrats - more than the 149 Republicans who voted for it - backed the measure and pushed it through.
"Tonight, the House took a critical step forward to prevent a first-ever default and protect our country's hard-earned and historic economic recovery," Biden said in a statement, adding that "the only path forward is a bipartisan compromise."
Republicans control the House by a narrow 222-213 majority.
The legislation suspends - in essence, temporarily removes - the federal government's borrowing limit through Jan. 1, 2025.
The timeline allows Biden and Congress to set aside the politically risky issue until after the November 2024 presidential election.
It would also cap some government spending over the next two years, speed up the permitting process for certain energy projects, claw back unused COVID-19 funds and expand work requirements for food aid programs to additional recipients.
Hardline Republicans had wanted deeper spending cuts and more stringent reforms.
"At best, we have a two-year spending freeze that's full of loopholes and gimmicks," said Representative Chip Roy, a prominent member of the hardline House Freedom Caucus.
Progressive Democrats - who along with Biden had resisted negotiating over the debt ceiling - oppose the bill for a few reasons, including new work requirements from some federal anti-poverty programs.
"Republicans are forcing us to decide which vulnerable Americans get to eat or they'll throw us into default. It's just plain wrong," said Democratic Representative Jim McGovern on Wednesday.
Late on Tuesday, the non-partisan Congressional Budget Office said the legislation would result in $1.5 trillion in savings over a decade. That is below the $4.8 trillion in savings that Republicans aimed for in a bill they passed through the House in April, and also below the $3 trillion in deficit that Biden's proposed budget would have reduced over that time through new taxes.
Senate up next
In the Senate, leaders of both parties said they hoped to move to enact the legislation before the weekend. But a potential delay over amendment votes could complicate matters.
Republicans said Senate Majority Leader Chuck Schumer and Senate Minority Leader Mitch McConnell could need to allow votes on Republican amendments to ensure quick action.
But Schumer appeared to rule out amendments on Wednesday, telling reporters: "We cannot send anything back to the House, plain and simple. We must avoid default." Senate debate and voting could stretch into the weekend, especially if any one of the 100 senators tries to slow passage.
Hardline Republican Senator Rand Paul, long known for delaying important Senate votes, has said he would not hold up passage if allowed to offer an amendment for a floor vote.
Senator Bernie Sanders, a progressive independent who caucuses with the Democrats, said he would oppose the bill due to inclusion of an energy pipeline and extra work requirements.
"I cannot, in good conscience, vote for the debt ceiling deal," Sanders said on Twitter.
In a win for Republicans, the bill would shift some funding away from the Internal Revenue Service, although the White House says that should not undercut tax enforcement.
Biden can point to gains as well.
The deal leaves his signature infrastructure and green-energy laws largely intact, and the spending cuts and work requirements are far less than Republicans had sought.
Republicans have argued that steep spending cuts are necessary to curb the growth of the national debt, which at $31.4 trillion is roughly equal to the annual output of the economy.
Interest payments on that debt are projected to eat up a growing share of the budget as an aging population pushes up health and retirement costs, according to government forecasts.
The deal would not do anything to rein in those fast-growing programs.
Most of the savings would come by capping spending on domestic programs like housing, education, scientific research and other forms of "discretionary" spending. Military spending would be allowed to increase over the next two years.
The debt-ceiling standoff prompted ratings agencies to warn that they might downgrade U.S. debt, which underpins the global financial system.
Credit rating agency DBRS Morningstar put the United States on review for a possible downgrade last week, echoing similar warnings by Fitch, Moody's and Scope Ratings.
Another agency, S&P Global, downgraded U.S. debt following a similar debt-ceiling standoff in 2011 during a similar partisan divide with a Democratic president and Senate majority and a Republican-majority House.
Investors gave a muted welcome to the US House of Representatives passing a bill that would suspend the government's borrowing limit and avert default, with market focus now turning to the Senate and the interest rate outlook.
Asian markets were trading higher when the bill cleared the house and held their gains. Investors nudged S&P 500 futures from slightly negative back to flat. Treasury yields rose marginally.
The Republican-controlled House voted 314-117 to send the legislation to the Senate, which must enact the measure and get it to President Joe Biden's desk before a Monday deadline, when the federal government is expected to run out of money.
"This has gone through with a very big majority, so there's enough bipartisan support that it's very hard to believe this isn't going to be even more of a formality in the Senate," said National Australia Bank head of currency strategy, Ray Attrill.
"What it does is turns the attention to the incoming data and the Fed meeting this month. It obviously removes one potential obstacle to the Fed moving this month." The bill would suspend the federal government's borrowing limit until 2025, allowing the Treasury to sell debt to pay its obligations. Two-year Treasury yields rose 2.7 basis points to 4.417%, while currency markets were broadly steady.
Investors are widely expecting the deal to get passed, but it could go right down to the wire. Senate consideration of the bill could take most of a week, and it would need to pass the bill without changes, otherwise it must return to the House.
If the deal passes, "it would take this issue off the table for the next couple of years and could be a tailwind for markets in June," wrote Brad McMillan, chief investment officer for Commonwealth Financial Network, in a Wednesday note.
The S&P 500 closed down 0.6% on Wednesday in a decline some analysts pinned partly on remaining uncertainty over the vote.
The index is up nearly 8.9% year-to-date and trading near its highest levels since August 2022.
Debt ceiling concerns periodically weighed on stock markets over the last week, although most investors expected an 11th-hour agreement. Worries have been more apparent in the Treasury market, where some investors had for weeks avoided maturities coinciding with a possible default.
Investors have viewed the possibility of a US default as an unlikely but potentially catastrophic event for global markets.
"Markets have taken the good news," said Jarrod Kerr, chief economist at Kiwibank. "We've seen a muted reaction... I think focus is back on Fed policy. There are still risks, but I do think that a deal will be done and things will calm down."