President Joe Biden and House Republicans have finally agreed on a deal to raise the government’s debt ceiling, including changes to the federal budget in a number of areas. Analysts say the agreement could have only marginal effects on the US economy.
That’s based on various estimates showing that government spending will be only slightly pared back over the two years of the deal, creating a small effect on overall economic output as measured by gross domestic product, including a limited number of job losses.
The US economy is the world’s largest, so the relatively modest effects on growth could be good news for investors who feared the debt ceiling crisis could have posed a greater and more widespread drag.
“The impacts will be negative but small,” Mark Zandi, chief economist at Moody’s Analytics, told CNN. “When you net it all out, it’s a modest headwind to a sluggish economy, but I don’t think it’s the thing that’s going to blow the economy over into a recession.”
Despite the deal’s limited macroeconomic impact, some analysts say it could also usher in a new era of tighter fiscal policy as congressional lawmakers contend with a national deficit that ballooned during the years of the Covid-19 pandemic.
Here’s what’s in the proposed deal and how it would show up in the broader economy.
What’s in the debt ceiling deal
The deal would suspend the federal government’s $31.4 trillion debt limit through January 2025. It would keep non-defense spending relatively flat in fiscal 2024 and then set a cap of 1% in spending increases for fiscal 2025. The US government’s fiscal year runs from October through September.