US officially escapes risk of default, investors breathe a sigh of relief

US President Joe Biden has signed the debt ceiling bill into law after weeks of debate, a symbolic move that ends a crisis that has roiled the country for months, forced Biden to cut short a trip to Europe and threatened to push the country to the brink of an economic meltdown.

The Fiscal Responsibility Act of 2023 was signed into law by President Joe Biden just one day after the Senate voted to pass it. This is the result of many “brain-wrenching” negotiations between President Joe Biden and House Speaker Kevin McCarthy.

According to the agreement, the two sides agreed to suspend the debt ceiling of 31.4 trillion USD for 2 years, until January 1, 2025; limit budget spending for fiscal years 2024 and 2025, accordingly in fiscal year 2024, 886 billion USD will be allocated for the defense budget and 704 billion USD for non-defense items.

US officially escapes risk of default, investors breathe a sigh of relief — (Photo: Reuters)

Overall non-defense spending is unchanged in fiscal 2024 and up 1% in fiscal 2025. In addition, the two sides agreed to recover unused Covid-19 funds; speed up the licensing process for some energy projects; and increase eligibility for pro-poor programs.

With the signing of the Fiscal Responsibility Act of 2023, markets and investors can breathe a sigh of relief. Economists had previously warned that a default could double the US unemployment rate and cause significant damage to the gross domestic product. According to President Joe Biden, the passage of this budget deal is crucial to help prevent a crisis, an economic collapse.

“The only way American democracy works is through compromise and consensus. And that’s what I do as president, to create bipartisan agreement when possible and when necessary. Passing this budget deal is critical. Because the stakes are high if we don’t get a budget deal,” President Joe Biden said.

Stock markets in Asia, Europe and the US all saw signs of improvement this weekend. Meanwhile, Bloomberg cited a report from the US Federal Reserve (Fed) showing that the US economy has shown signs of cooling in recent weeks as hiring and inflation both slowed.

However, in a sign that the challenges for President Joe Biden's administration are not over, Fitch Ratings has decided to maintain the US debt rating at negative, while expressing disappointment at the "political polarization" in the US. Having occurred under President Barack Obama, the debt ceiling battle, although not having a major impact on next year's presidential election, has clearly had a negative impact on the image of the world's No. 1 economy./.

Thu Hoai/VOV

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