US President Joe Biden and Republican Speaker Kevin McCarthy reached an agreement on the US debt ceiling over the weekend. The agreement should allow US lawmakers to pass the bill and avoid a default with a revised deadline date of June 5. The threat that the US government would be unable to reach an agreement and potentially default led to much uncertainty in financial markets over the past several weeks.

• The US President and Republican speaker have reached a tentative agreement on the US debt ceiling. They spent the weekend working to get the buy-in from their respective parties, and the agreement still requires the approval of Congress.
• The deadline for a final deal was revised to June 5 from June 1. US Treasury Secretary Janet Yellen said her department would run out of money by that date, potentially triggering a US government default.
• The US debt ceiling extension will be in place for two years. It suspends the debt ceiling, meaning the US Treasury has unlimited borrowing authority until 2025. Other parts of the deal included limits on discretionary spending, expansion of work requirements and energy permits.
• Congress will vote on the bill on Wednesday, and if approved, the legislation will head to US President Biden’s desk for sign-off.

US equity markets were closed yesterday. The agreement, while not yet finalized, adds some relief for investors. But that relief could be muted as recent data shows inflationary pressures remaining relatively high, which could prompt the US Federal Reserve Board to keep raising interest rates. In Canada, inflation was also higher in April, which could lead the Bank of Canada to reconsider its stance on pausing interest rates. There is still much uncertainty that could weigh on financial markets in the upcoming weeks.

Please contact me to discuss how the potential US debt ceiling agreement could affect your portfolio.