US President Joe Biden and Kevin McCarthy, the top congressional Republican, have reached a tentative deal to avert a possible catastrophic debt default.
While the agreement reached overnight ended a bitter political stalemate, it has not yet put a stop to the financial woes that Janet Yellen, the Treasury secretary, has warned threaten to trigger a global economic downturn.
The pressure is on to get the deal passed through Congress before June 5, the date the US runs out of money to pay its debts.
Mr Biden called the deal “an important step forward” and “good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost”.
But, he added, the agreement required compromise. “Not everyone gets what they want,” Mr Biden said. “That’s the responsibility of governing.”
Mr McCarthy announced 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.”
He added: “It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach.”
“There are no new taxes, no new government programs,” he said.
American lawmakers have been arguing over whether to raise or suspend the $31.4 trillion debt ceiling, which determines how much money the US government can legally borrow. Government debt hit its limit in January, which means the US cannot legally borrow any more money.
After months of back-and-forth, the tentative agreement came together in a flurry of calls on Saturday night.
“We still have more work to do tonight to finish the writing of it,” Mr McCarthy told reporters on Capitol Hill. He said he expected to finish writing the bill on Sunday before a vote on Wednesday.
Among the terms was a pact to cap non-defence discretionary spending at 2023 levels for one year and increase it by 1 per cent in 2025, a source familiar with the deal told Reuters.
The deal would suspend the debt limit through to January of 2025, while capping spending in the next two budgets, claw back unused COVID funds, speed up the permitting process for some energy projects and includes some extra work requirements for food aid programs for poor Americans.
“It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach – there are no new taxes, no new government programs,” Mr McCarthy said.
Republicans who control the House of Representatives have pushed for steep cuts to spending and other conditions, and were sharply critical of the deal as early details were reported.
Mr Biden had previously refused to negotiate with Mr McCarthy over future spending cuts, demanding that lawmakers first pass a “clean” debt-ceiling increase free of other conditions.