Congressional leaders came to an agreement in late May to suspend the debt ceiling until January 1, 2025 – removing the near-term risk of a US default and sparing the American people political wrangling on the issue for the next 18 months or so.
According to projections made by the Congressional Budget Office, the Fiscal Responsibility Act of 2023 reduces budget deficits by $1.5 trillion over the next 10 years, mainly by imposing caps on discretionary spending.
In terms of the Federal budget, roughly 1/3 is discretionary and funded though the annual appropriations process, where Congress must pass bills to provide money to carry out the programs.
The other two-thirds of the Federal budget comprises mandatory spending, such as Social Security, Medicare, and interest on the federal debt. Mandatory spending is ongoing and occurs each year absent a change in an underlying law that provides funding.
The debt ceiling deal does little to put our federal finances on a path of long-term sustainability, since the budget is far from balanced. But it does ensure our federal obligations will be met.
And thankfully a government-induced, calamitous outcome for the financial markets has been avoided.
RK