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The US House will likely pass a bill Tuesday that would prevent a historic US debt default this month by raising the federal debt limit in early December, but experts warn of a temporary measure – a byproduct of failed talks for a long-term solution — only delay decisions that could disrupt markets, especially if Democrats are forced to reduce the terms of President Joe Biden’s larger policy agenda.

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House lawmakers are set to raise the national debt limit to $480 billion to vote on a stopgap bill passed by the Senate to return from a week’s recess at 4 p.m. EDT on Tuesday, allowing the US Treasury to provide government funding. Will get enough cash to meet the financial obligations. roughly 3 December

In a Monday note to lawmakers, House Speaker Nancy Pelosi (D-Cal.) said She expects a “unanimous Democratic and perhaps bipartisan vote” but also acknowledges that “difficult decisions must be made very soon” as lawmakers then seek a long-term debt solution, a $1 trillion bipartisan infrastructure plan and a multi-party infrastructure plan. -trillion- dollar spending package over the next two months.

But analysts at Bank of America said Monday that “the loan limit headache will likely return” when new cash begins to dry up in late November because the bill’s successful passage “does nothing to resolve the underlying impasse” between lawmakers. does”.

Republicans have repeatedly pledged that they will not support measures to raise the $3.5 trillion debt limit proposed by Democrats for social priorities, with Senate Minority Leader Mitch McConnell saying last week that the extension would only allow Democrats to raise the debt limit. To give time. On their own using a special budgeting process called reconciliation.

However, Democratic Party leaders have so far balked at the idea of ​​using reconciliation with Senate Majority Leader Chuck Schumer to raise the debt limit. Call It is also a process “pulled out, complicated and risky” and instead insists on a bipartisan solution.

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“The drama is over,” wrote Lindsey Bell, chief investment strategist at Ally Invest, in an email on Tuesday, adding that a solution to the debt limit talks may ultimately lie in trade-offs within the social spending bill, which is also a Democrat from the Liberal Party. want to pass using conciliation in spite of opposition from the members.

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Bell warns that Democrats could propose spending cuts or higher-than-expected taxes to help limit debt growth in the future — two measures that would each undermine corporate growth expectations. “This will impact stocks,” she says, “that the nature and size of the cut will be critical to the market’s response.”

main background

Democrats and Republicans struck a tentative funding deal Thursday to help cushion the damage caused by the uncertainty of the historic default to markets. The deal comes nearly two weeks after Treasury Secretary Janet Yellen warned the US was facing a “catastrophic” recession if lawmakers failed to raise debt limits by October 18, with millions of Americans losing Social Security and social security among potential consequences. Health benefits lost. LPL financial strategists wrote in Monday’s research note, “The presence of Democrats and Republicans playing politics with deadlines was weighing on the markets and leaving businesses to prepare for a very unlikely, but still possible, government default.” was forcing.” The Senate passed the measure later that evening, but with McConnell, hopes for a bipartisan, long-term solution quickly faded. thrust The GOP would only engage in a “traditional” negotiation to raise the limit if Democrats “abandon their efforts to ram through a historically reckless tax and spending spree.”

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In a Monday research note, strategists at LPL Financial warned that this year’s debt limit debacle is similar to a similar deadlock in 2011, during which the S&P 500 fell more than 16% over a 21-day period. LPL’s Barry Gilbert and Lawrence Gillum argued, “This large drop was entirely due to a policy mistake of not raising the debt limit on time.” “It is likely that if Congress had to wait again until the last minute before raising or suspending debt limits, equity markets would react in a similar manner.”

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Although lawmakers have managed to avert a catastrophic loan default this month, it is still unclear how Democrats will push to raise or suspend debt limits on their own. Bank of America hopes Democrats will eventually not use reconciliation and will instead manage to pass an increase in the debt limit without Republicans blocking a vote with a filibuster – a measure McConnell blocked last month. Had given. Additionally, he says it’s possible that Democrats could invoke the “nuclear option” of last resort, an emergency measure to get around a Republican filibuster and pass escalation with a simple majority.

Senate agrees to raise debt limit to avoid ‘catastrophic’ default—for now (Businesshala)

Senate passes stopgap bill to raise debt limit, but long-term solution still unclear (Businesshala)

Republicans block Democratic effort to raise debt limits as officials warn of economic devastation (Businesshala)