The White House and House Republicans have reached an agreement in principle to raise the U.S. debt ceiling. Described by President Joe Biden as “good news for the American people,” the deal would open the door to avoiding a historic default by the government in Washington and averting not just a potential economic catastrophe in the United States but a global recession as well.

Joe Biden, Kevin McCarthy Announce In-Principle Agreement to Raise Debt Ceiling

After weeks of negotiations, which put an end to a months-long stalemate, the White House and the Republican leadership of the House of Representatives now have “an agreement in principle” on a deal to raise the debt ceiling in the U.S. for two years and limit budget spending.

The agreement has been reached by President Joe Biden and House Speaker Kevin McCarthy during a phone call on Saturday. Both sides are now facing the difficult task to convince the Republican-controlled House and Democrat-dominated Senate to back the deal in Congress before June 5.

On that date, the U.S. government could find itself unable to pay its bills, according to Treasury Secretary Janet Yellen, who just updated her projection on Friday. Yellen had previously estimated that the United States could default on its debt obligations as early as June 1.

“We have come to an agreement in principle. We still have a lot of work to do but I believe this is an agreement in principle that is worthy of the American people,” McCarthy told reporters, quoted by CNN. In a tweet, he accused the U.S. head of state that “he wasted time and refused to negotiate for months.”

President Biden confirmed the deal on Twitter, too. He remarked that the agreement is a compromise that would not make everyone happy but emphasized it “is good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession.”

Earlier this evening, Speaker McCarthy and I reached a budget agreement in principle.

It is an important step forward that reduces spending while protecting critical programs for working people and growing the economy for everyone. And, the agreement protects my and…

— President Biden (@POTUS) May 28, 2023

Deal to Cap Spending, Postpone Further Ceiling Revisions Until After 2024 Election

Joe Biden urged both chambers of Congress to “pass the agreement right away.” Negotiating teams are expected to present the finalized text of the legislation on Sunday and McCarthy said that he will likely speak with the President again in the afternoon.

If approved by lawmakers, with the House vote expected on Wednesday, the agreement would increase the limit for the U.S. government’s $31.4 trillion debt through January 2025, postponing future clashes over the ceiling between the Democrats and the Republicans beyond the 2024 presidential election.

It would also cap spending in the 2024 and 2025 budgets, Reuters reported. And according to a source familiar with the negotiations quoted by CNN, non-defense spending will be capped to the current levels for next year and increased by 1% in the following fiscal year.

In case Biden signs it into law before the approximate default date, Washington would avoid a potentially unprecedented crisis with unpredictable consequences for the world economy as the U.S. government has never before defaulted on its obligations.

The threat of a recession has sparked reactions across the globe. While the credit rating agency Moody’s labeled the potential U.S. default a “near-term danger to the dollar’s position,” China’s Chengxin International Credit Rating agency downgraded the United States’ credit rating this week.

Crypto markets reacted positively to the news of the deal reached in the U.S. capital, with the price of bitcoin (BTC) rising by around 2% in 24 hours to over $27,000 at the time of writing and that of ether (ETH), the second-largest crypto by market cap, increasing by nearly 1% to almost $1,850 per coin.

Do you expect the Congress to support the agreement to raise the U.S. debt ceiling on time? Tell us in the comments section below.