Debt Ceiling Update

Following up on the agreement reached between President Joe Biden and House Speaker Kevin McCarthy on the debt ceiling, here is an update with the relevant points: 

  • Over the weekend an agreement on the “Fiscal Responsibility Act”, which suspends the debt limit until next January 1st, 2025, was announced
  • The main source of budget savings in the agreement is a two-year cap on federal discretionary spending. Congress annually appropriates this segment of spending, which represents about 25% of the total federal spending, with just over half going to defense and the rest to domestic programs outside of major entitlement programs. These limits could reduce discretionary spending by $1.5 trillion over the next 10 years. Additionally, the agreed-upon adjustments could imply an annual reduction in spending in 2024 and 2025, on the order of 0.1 – 0.2% of GDP.
  • Reaching an agreement eliminates the greater part of uncertainty concerning the looming debt deadline, however the bill still has to be approved in both Chambers. 

The home stretch of this process will be subject to the speed with which it can be approved by the legislators, before Monday, June 5th (considered as “x” date). Under this context, the House of Representatives is scheduled to vote as soon as possible, while the Senate could vote on Friday, June 2nd

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