White House reaches deal with Republicans to avert US debt default

US president Joe Biden has struck a deal with Kevin McCarthy, the Republican House speaker, that would avert a debt default looming in early June and bring relief to the global economy and financial markets.

Biden and McCarthy reached the in-principle agreement on Saturday following days of tense, round-the-clock negotiations between the White House and Capitol Hill that sought to break the fiscal stand-off gripping Washington.

The deal will raise America’s $13.4tn borrowing limit for two years, until after the next presidential election in late 2024, and will include caps on government spending over the same period.

But the compromise legislation still needs to pass both chambers of Congress over the coming week, and is likely to face resistance from some lawmakers in both the Republican and the Democratic parties.

Until then, there will still be uncertainty over the potential for a default in the world’s largest economy that could rattle markets, raise borrowing costs and shock labour markets around the world. Janet Yellen, the US treasury secretary, has warned that the US risks a default as early as June 5.

The agreement was sealed after Biden and McCarthy spoke by phone on Saturday evening. Biden was at his Camp David presidential retreat in Maryland, while McCarthy had remained in Washington to oversee the negotiations. Over the course of the day, the speaker had been huddling with his lead negotiators as well as the party’s whips responsible for counting and marshalling votes when the bill is put on the House floor.

The biggest risk to the deal’s passage through Congress is a possible revolt from the right flank of the Republican party closest to former president Donald Trump. There were already signs of unrest and anger.

Dan Bishop, a lawmaker from North Carolina, tweeted on Saturday that it would be “war” if McCarthy brought back a debt-limit increase that would protect Biden in the 2024 presidential race. McCarthy will need the backing of some Democrats in order to get a majority for the bill, but it is unclear how many will support it.

The showdown over the debt ceiling will not only have economic and financial implications, but could reverberate into the race for the White House in 2024. Biden has already launched his re-election campaign, while Trump and Ron DeSantis, the Florida governor, are the top contenders for the Republican nomination.