WASHINGTON – The Senate passed legislation to suspend the U.S. debt ceiling and impose restraints on government spending through the 2024 election, ending a drama that threatened a global financial crisis.
The measure now goes to President Joe Biden, who forged the deal with House Speaker Kevin McCarthy and plans to sign it just days ahead of a looming U.S. default.
The 63-36 vote on the bill was carried by moderates in both parties, many of whom aired their misgivings about parts of the deal but were convinced that their concerns weren’t worth risking the havoc a default would unleash.
“If we do this we will not default,” Senate Majority Leader Chuck Schumer said just before the vote. “That is very, very important.”
Investors have largely judged the risk of a U.S. default as resolved and are shifting attention to other uncertainties, such as Federal Reserve policy. Benchmark Treasuries dipped in Asia trading Friday, while equities in the region followed U.S. benchmarks higher amid continued strength in tech shares.
A hard-fought compromise reached after weeks of private talks and public finger-pointing, the legislation is a rarity in a highly polarized Washington where dealmaking has become a lost art form.
Getting it through the Senate Thursday night took hours of negotiations between the two parties, with independent Sen. Kyrsten Sinema of Arizona shuttling in designer sneakers between Republicans lunching on the second floor of the Capitol and Democrats on and off the Senate floor.
Ultimately, they settled on allowing uncharacteristically speedy votes on 11 amendments – all of which failed – and a pair of statements from Schumer aimed at soothing concerns about defense spending levels and other potential cuts.
Schumer made it clear the Senate could bypass the spending caps in the bill for Ukraine, defense and domestic priorities using emergency funding, though the GOP-controlled House would have to concur.
Senate passage ends the worst standoff over the U.S. debt in a dozen years. But it comes at some political cost for Biden and McCarthy, who have taken fire from lawmakers on their respective party’s flanks who insist too much was given away in the negotiations.
The ultra-conservative House Freedom Caucus intensified its criticism of McCarthy after more Democrats voted for the bill in the House than Republicans. Caucus members will meet next week to discuss their next steps, which could include an effort to oust McCarthy.
For Biden, the vote risks alienating progressives ahead of a reelection campaign where he will rely on them to rev up enthusiasm and stump for him among critical constituencies.
But the president isn’t facing a serious primary challenge from the left, and the deal averts an economic upheaval heading into his reelection bid. It also strengthen his reputation for pragmatism and working across party lines.
The bill would set the course for federal spending for the next two years and suspend the debt ceiling until Jan. 1, 2025 – postponing another clash over borrowing until after the presidential election.
In exchange for Republican votes for the suspension, Democrats agreed to cap federal spending for the next two years. The bill also green lights Equitrans Midstream’s stalled Mountain Valley Pipeline in West Virginia
Spending restraints in the deal may have a big effect on young college graduates who will have to resume student loan payments and some lower-income Americans hit with benefit restrictions or service cuts.
Bloomberg Economics economists Anna Wong and Maeva Cousin wrote on Tuesday that the two-year spending caps called for in the agreement “will deal an additional short-term blow to an economy already vulnerable to a recession. Yet they’ll barely dent the unsustainable medium-term trajectory of U.S. federal debt – which we estimate is still on track to rise from 97% of GDP in 2022 to more than 130% of GDP by 2033.”
The hard choices on how to adjust government services are mostly left to Congress to negotiate in separate spending packages due before the Oct. 1 start of the next federal fiscal year. The nonpartisan Congressional Budget Office projects the spending caps will require $64 billion in cuts next year, though White House officials claim they have a side deal to counteract most of those cuts, effectively amounting to an overall spending freeze.