Last-minute deal to raise US debt limit

President Joe Biden and House Speaker Kevin McCarthy reached what both men called an ‘‘agreement in principle’’ yesterday to raise the federal government’s borrowing limit and cut some spending, as they sought to end a months-long stalemate that brought the government to the brink of defaulting on its credit for the first time.

The deal must still pass Congress. Its failure could upend the global financial system, jarring markets from Tokyo to London, jeopardising Medicare and Social Security payments and calling into question the United States’ role as the world’s most reliable economy.

McCarthy, a Republican, said that he and Biden had agreed to a two-year increase on the US$31.4 trillion (NZ$52tr) debt ceiling, extending the nation’s borrowing limit until after the 2024 presidential election. The White House said it would accept temporary spending caps on nondiscretionary funding, tougher work requirements on social safety net programmes and permitting changes to speed up energy and gas projects.

Biden and McCarthy will need to sell the compromise to their respective allies in Congress, an uphill battle that includes convincing far-right GOP members who wanted McCarthy to go further in extracting spending cuts and progressive Democrats who say Biden caved to right-wing demands.

McCarthy said that he and Biden had spoken twice yesterday and that ‘‘we still have a lot of work to do. But I believe this is an agreement in principle that’s worthy of the American people.’’

The bill has ‘‘historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce,’’ the speaker said.

He said he expected that the bill would be written and posted by today, with a House vote on Thursday.

Biden, in a statement, called the agreement ‘‘an important step forward that reduces spending while protecting critical programmes for working people and growing the economy for everyone.’’

He said that the agreement protects his signature legislative accomplishments but conceded that it ‘‘represents a compromise, which means not everyone gets what they want.’’ He urged Congress to approve it quickly to avoid ‘‘catastrophic default.’’

A source familiar with the pact said the new work requirements for safety net programmes are limited, sparing Medicaid, for example. But they do include some new work requirements for people who receive SNAP benefits, known as food stamps. – LA Times