The US avoided defaulting on its obligations today due to a debt ceiling deal agreed between President Joe Biden and House Speaker Kevin McCarthy. Photo: États-Unis/REUTERS/Kevin Lamarque

The US avoided defaulting on its debt obligations today thanks to legislation that will permit the federal government to spend beyond the country’s $31.4 trillion debt ceiling.

Congress periodically votes to raise or suspend the USborrowing cap. The bill signed into law by President Joe Biden on Saturday suspends the country’s statutory federal borrowing limit until January 1, 2025, notably after the November 2024 presidential election. In recent years, debt ceiling legislation has become more controversial with Republicans and Democrats increasingly unable to agree on terms due to disagreement on spending priorities.

Although compromise legislation, this debt ceiling agreement only punts the issue of spending to voter choice come 2024. Republicans argue cuts are necessary to address inflation—which currently stands at a 4.9 per cent annual rate and ballooned from 1.4 per cent in 2020 to 7 per cent in 2021—and the national debt. Democrats believe that spending should not be cut and potentially expanded in certain policy areas of interest, such as healthcare, tax enforcement, education and the environment. Expect spending to be a key electoral issue in 2024 and future uncertainty over the country’s credit to deter investment.