The White House and House Republicans have reached an agreement in principle, House Speaker Kevin McCarthy announced on Saturday evening.
“We still have a lot of work to do. But I believe this is an agreement in principle that’s worthy of American people,” McCarthy told reporters on Capitol Hill.
“That’s historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, reign in government overreach. There are no new taxes, no new government programs. There’s a lot more within the bill. We still have more work to do tonight to finish all the writing of it,” he said.
President Joe Biden said the agreement is “good news” as the deal “reduces spending while protecting programs for working people and growing the economy for everyone.”
“The agreement represents a compromise, which means not everyone gets what they want,” he said in a statement. “That’s the responsibility of governing.”
Biden urged the House and Senate “to pass the agreement right away.”
The announcement comes after two weeks of talks between negotiators on both sides to reach an agreement on the terms for raising the $31.4 trillion borrowing ceiling to avoid a historic default on U.S. government debt.
McCarthy didn’t take media questions “out of respect,” adding he would brief House Republicans on the deal first.
The final text of the bill, according to the House Speaker, will be ready on Sunday, and voting will take place next Wednesday.
“I expect to finish the writing of the bill, checking with the White House and speaking to the president again tomorrow afternoon and then posting the text of it tomorrow,” he said.
McCarthy refused to offer details on the deal, although some media reports citing anonymous sources claimed that both parties agreed to raise the nation’s debt limit for two years and place spending caps over that time, as well as increase work requirements for food aid.
Before the announcement, McCarthy announced the deal on Twitter.
“I just got off the phone with the president a bit ago. After he wasted time and refused to negotiate for months, we’ve come to an agreement in principle that is worthy of the American people. I’ll deliver a statement at 9:10pm ET,” McCarthy wrote on Twitter.
The White House earlier confirmed the phone call between President Biden and the speaker, as well as phone calls with Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries.
But some conservative and progressive lawmakers have expressed concerns about the negotiations, which might make the bill hard to advance through Congress.
On Friday, Treasury Secretary Janet Yellen revised the projected X-date for the budget ceiling to June 5, delaying the possibility of the United States defaulting on its debt obligations by four days.
The agreement comes as the Treasury’s cash balance was shrinking at an alarming level, falling below $50 billion on May 24, down from $316.381 billion at the start of the month.
Why Negotiations Took So Long
Since the U.S. government crossed the $31.4 trillion debt limit approved by Congress in January, the White House has insisted that the president would not tolerate any negotiations threatening a default.
“I will not negotiate whether America pays its debt,” he said in a February 2023 tweet. “I will not allow this nation to default.”
During briefings, Press Secretary Karine Jean-Pierre repeatedly told reporters that it is imperative to raise the debt ceiling without any preconditions, “as they have done in Democratic and Republican administrations.”
Earlier this month, Biden met with four top congressional leaders after Treasury Secretary Janet Yellen warned the government could run out of cash to cover its obligations as early as June 1. However, Jean-Pierre confirmed at the time that Biden was not discussing the debt ceiling but rather “a separate conversation about their spending, what they want to do with the budget.”
House Speaker Kevin McCarthy (R-Calif.) accused Biden of being “afraid” to negotiate. But the administration charged that the Republicans had held the country hostage over the debt limit.
McCarthy responded to these claims by noting that the GOP put together a “responsible plan” to increase the debt ceiling to keep up with current bills while tackling and reigning in aspects of federal government spending.
He introduced legislation—the Limit, Save, Grow Act—that would raise the debt ceiling by $1.5 trillion, return federal spending to 2022 levels, and cap spending growth at 1 percent per year. The bill was passed by a wafer-thin vote of 217 to 215.
Instead, it is the current administration “putting the country in default,” he said.
“We are the only ones being responsible and sensible about this,” McCarthy told reporters in April.
House Minority Leader Hakeem Jeffries (D-N.Y.) later pushed back against the Republican proposal to impose work requirements on individuals receiving federal aid, calling it a “nonstarter.”
“In the context of a debt ceiling showdown that has been manufactured as part of an effort to avoid a default, that these types of so-called work requirements can be imposed on the American people when there are already significant work requirements that exist under law,” he told CNBC in a May 17 interview.
How Biden, McCarthy Managed Talks
Following an hour-long meeting on May 16, President Biden and McCarthy agreed to daily and direct deliberations. Then, as the president traveled to Japan for the G7 summit, which had been overshadowed by the default risk in Washington, the two sides picked representatives to negotiate the debt ceiling.
Rep. Garret Graves (R-La.) engaged with Office of Management and Budget head Shalanda Young and White House adviser Steve Ricchetti.
This led to plenty of optimism that a deal was approaching as McCarthy congratulated the president because he “changed the scope” of discussions, signaling “a better process.”
“There was an overwhelming consensus, I think, in today’s meeting with congressional leaders that defaulting on the debt is simply not an option,” Biden said.
Biden cut his overseas trip to meet with McCarthy. The two held a “productive” discussion when he returned to Washington. Biden acknowledged that the federal government needs to cut spending but he also noted that lawmakers need to address tax loopholes and ensure the wealthy are paying their fair share.
“We still have some disagreements, but I think we may be able to get where we have to go. We both know we have a significant responsibility,” Biden told reporters on May 22.
Rep. Chip Roy (R-Tx.) was a vocal proponent of moving ahead with fiscal reforms amid the debt ceiling increase.
In a memo to his Republican colleagues in the lower chamber, Roy urged everyone to “hold the line” in negotiations to ensure the provisions inside the April debt limit bill would be implemented, including about $4.8 trillion in deficit reductions over a decade.
“Each are critical, and none should be abandoned solely for the quest of a ‘deal,’” Roy wrote.
“While House Republicans are fighting for hard-working American families facing a woke, weaponized government at odds with our way of life, President Biden and Democrats have been dragging their feet for weeks to fight for rich liberal elitists who want more spending, more government, more corporate subsidies, and less freedom.”
Writing in a Fox News op-ed, Sen. Bernie Sanders (I-Vt.) urged the president to use the 14th Amendment to raise the debt ceiling and avoid a default.
“This is not a radical idea. Making sure that the United States continues to pay its bills regardless of whether the statutory increase in the debt ceiling is raised or not is an idea that has been supported by Republicans and Democrats,” he wrote.
Rep. Pramila Jayapal (D-Wash.) warned reporters she was worried of a “huge backlash … in the streets” if the White House agreed to spending cuts.
However, a recent CNN Poll conducted by SSRS found that 60 percent of Americans say Congress should only increase the debt limit if spending cuts are attached to a deal.
Rep. Alexandria Ocasio-Cortez (D-N.Y.) said it would be a “problem” if Biden agreed to spending caps or cuts through the debt ceiling.
According to Rep. Jamaal Bowman (D-N.Y.), Republicans were “economic terrorists,” telling CNN that Biden should invoke the 14th Amendment, mint a coin, and cease negotiating “with hostage takers.”
“I mean, we don’t negotiate with terrorists globally,” he said. “Why are we gonna negotiate with the economic terrorists here that are the Republican Party?”
During a May 24 press briefing, Jean-Pierre expressed that the debt ceiling debate was “a manufactured crisis” by the Republicans.
How Investors Became Nervous
Leading up to the debt ceiling agreement, the U.S. financial markets were mostly calm as investors were confident that the two sides would eventually reach a deal as they had in the past. But there were some underlying jitters.
Spreads on 1-year credit default swaps (CDS)—a measurement of default risks—had hit a record high. The 6-month and 5-year CDS also hit their highest levels in about a decade. But as officials indicated that talks had progressed, the cost of insuring exposure to U.S. government debt eased on May 26.
Market observers also noted that the gap between short-term Treasury yields and other interest rates suggested that investors took the default risk seriously.
But the broader stock market held steady.
The Nasdaq Composite Index rallied about 6 percent over the past month, while the S&P 500 rose roughly 1 percent. The Dow Jones Industrial Average slumped 2 percent.
In addition, a Bank of America survey of nearly 300 fund managers found that 71 percent of respondents expected a resolution before the Treasury ran out of money to cover its obligations.
Jackson Richman, and Lawrence Wilson contributed to this report.
UPDATE: This article has been updated to include comment from President Joe Biden.