US House hardliners could try to block debt-ceiling deal without 'robust' cuts

As markets turn optimistic about no US default, backed by the latest speeches from US President Joe Biden and Republican US House Speaker Kevin McCarthy, Reuters came out with a warning note while citing the powerful group of the US decision-makers, namely the House Freedom Caucus.

“The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives, if the accord does not contain ‘robust’ federal spending cuts,” said the news.

Reuters adds that while there are many variables at play, opposition from the Freedom Caucus could, at a minimum, slow down passage of a bill at a time when the economy can ill afford it, given the Treasury Department's warning that the federal government could be unable to pay all its bills as soon as June 1.

Key quotes

The caucus issued its official position on Thursday, urging the Democratic-led Senate to enact the Republican debt-ceiling bill that passed the House in April, which would pare discretionary spending to fiscal year 2022 levels and cap future annual growth at 1%.

Freedom Caucus member Bob Good is one of several hardliners who say they stand ready to oppose bipartisan legislation that fails to meet their goals, despite the risk of a default that could cripple the U.S. economy and unsettle global financial markets.

While a bipartisan deal could still pass despite Freedom Caucus opposition, a split within the Democratic caucus over the right approach could give the faction greater sway in a debt-ceiling vote, especially if the group adopted a formal position that led members to vote en bloc.

FX implications

The news challenges the market’s latest optimism and allows the US Dollar bulls to take a breather amid fears of a delay in the US debt ceiling decision.

Also read: Forex Today: Not even risk appetite slows the Dollar