Congress Narrowly Passes the Debt Ceiling Deal and Avoids a Financial Catastrophe
Key takeaways
- Debt ceiling deal sped through the House and Senate without issue, though the latter’s vote was a bit close for comfort
- The U.S. economy now avoids financial catastrophe which would have impacted the global economy, at least until 2025
- The stock market and world equities both rose at the news
It’s always a good day when the entire world economy doesn’t collapse into a fiery garbage pile. Congress has officially passed the debt ceiling deal, avoiding a U.S. debt default and the deep recession that would have followed, had nothing been agreed upon in time. The markets, as predicted, were happy with the outcome — here’s the latest.
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What happened at the vote?
The House, which the Republicans control, voted 314–117 to progress the deal (formerly known as the Fiscal Responsibility Act) to the Senate. Thankfully the Senate took quick action, voting 63–36 to secure the deal’s future and avoid a U.S. debt default for the first time ever.
60 votes were needed from the Senate, so the deal just about squeezed through. Notable senators who voted against the deal included Elizabeth Warren and Bernie Sanders from the Democrats and 31 Republicans, including John Barrasso.
The debt ceiling is now suspended until 2025. The deal was a compromise between the two parties which included a 3% rise in defense spending, a freeze on non-defense spending and changes to the way social assistance programs, like SNAP and TANF, work to become less generous.
The IRS also saw its funding cut by $20 billion and around $30 billion of Covid funding was clawed back by the Republicans. President Biden is expected to sign the deal into law today, ahead of the Monday ‘D-Day’ deadline.
How did the markets react?
It was music to the market’s ears to hear that the debt ceiling deal had passed. The Dow Jones closed 0.5% higher, while the S&P 500 climbed 1%. The tech-heavy Nasdaq finished 1.3% up from the day before.
Global equities also increased, with the MSCI world equity index up 1.1% and the STOXX 600 index climbing 0.78% — a sign that the rest of the world is relieved at the news, too. Treasury yields fell as the debt ceiling news coincided with the latest ADP jobs report; the ten-year yield dropped to 3.607%, while the 30-year yield was down to 3.826%.
The bottom line
Nobody wanted to see the U.S. default and plunge the world into a new financial crisis, but it got a little too close for comfort this time around. Still, now the saga is out of the way, the U.S. can turn its attention back to bringing inflation in line.
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