Biden, McCarthy Forge Debt Deal in Bid to Avert Default
In addition, the deal creates a mechanism to force Congress to complete annual appropriations bills for 2024. It would impose a 1% cut across the board if the bills are not passed. This encourages Republicans who would forgo the defense increases in the caps deal to come to an agreement, decreasing the chances of an Oct. 1 government shutdown.
Initial reaction from economists, without knowing all the details of the reported agreement, indicated little expectation the pullback on government spending would have have an outsized impact on the overall economy.
Michael Feroli, chief U.S. economist at JPMorgan Chase, said in an email the reported deal wouldn’t substantively change the outlook he issued last week as the White House and Republican lawmakers drew close to an agreement.
In a note to clients on May 24, Feroli suggested a cap on non-defense federal spending through fiscal year 2024 would have a modest impact on growth and could be offset if the Fed responded with a slightly less aggressive approach in its quest to slow the economy and tame inflation with higher interest rates.
Political Impact
Although the tense negotiations put the country on edge, the agreement could bolster both Biden and McCarthy politically, assuming it garners enough support on Capitol Hill.
For McCarthy, skepticism that he would be able to negotiate an agreement given his razor-thin advantage in the House has hung over the speakership he won in a 15-vote runoff early this year. McCarthy arranged for a call with fellow House Republicans Saturday evening in Washington.
The compromise, however, could also provoke an attempt by a handful of conservative lawmakers to call a vote to oust him.
The president, at the same time, sidesteps the biggest threat to the post-pandemic economic recovery as he seeks a second term. Yet meeting some GOP demands also risks alienating progressives he needs to propel his reelection campaign.
The deal would clawback funding for Internal Revenue Service agents and accelerate some energy project environmental reviews, according to a GOP summary.
The summary said that domestic spending in 2024 would be cut to fiscal 2022 levels. The differing take from the White House view is likely due to accounting gimmicks.
In terms of Covid-19 funding, the White House protected money for next-generation vaccines, veterans medical care funding, housing voucher funding and Indian health service, according to a person familiar.
“The agreement represents a compromise, which means not everyone gets what they want,” Biden said in a statement.
White House budget director Shalanda Young, senior adviser Steve Ricchetti, and legislative affairs director Louisa Terrell crafted the deal with Representatives Garret Graves, a Louisiana Republican, Patrick McHenry, a North Carolina Republican, and McCarthy’s chief of staff, Dan Meyer.
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