US Senate votes to temporarily lift debt ceiling

Agreement extends debt ceiling until early December, setting up end-of-year political fight

The US Capitol building on Capitol Hill, seen during sunset in Washington DC, US. Reuters

The US Senate voted to dodge a default crisis for two months on Thursday evening, after leaders reached a bipartisan deal to raise the country's debt ceiling temporarily.

Legislators voted 50-48 to approve the deal majority leader Chuck Schumer reached with his Republican equal Mitch McConnell to extend the US debt ceiling by $480 billion to December 3.

Now, the Democratic-led House of Representatives will vote on the measure before it goes to US President Joe Biden to sign into law.

The White House said that Mr Biden "looks forward" to signing the measure.

The agreement sets up for what will probably be an end-of-year political fight when Congress again faces deadlines to fund the government and raise the debt limit.

"As we approach the coming months, we hope that even more Republicans will join Democrats in responsibly addressing the debt limit instead of choosing default or obstruction," White House Press Secretary Jen Psaki said in a statement on Thursday night.

The initial deadline to raise the debt limit is October 18, when the US Treasury would quickly run out of funds to handle the nation's debt.

Political brinkmanship between both parties lasted for weeks, with Democrats frustrated by Republican efforts to filibuster a vote to raise the debt limit.

Mr Schumer has repeatedly rejected the idea of raising the debt limit through a legislative process known as reconciliation, which would remove Republicans from the process entirely, arguing raising the debt limit should be a bipartisan responsibility.

Senate Republican leader Mitch McConnell on Wednesday extended an offer to Democrats that would temporarily alleviate the immediate risk of a default.

“This will moot Democrats’ excuses about the time crunch they created and give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation,” he said in a statement.

US President Joe Biden and Treasury Secretary Janet Yellen both pushed for immediately suspending the debt limit in a meeting with business leaders on Wednesday, saying defaulting would crush the US economy and financial markets. Ms Yellen added that it would plunge the US into a recession.

US stocks surged following news of the agreement, with the Dow Jones Industrial Average rising 514 points.

Traditionally, suspending or raising the debt ceiling has received bipartisan support. This time, Mr Biden argued, Republicans should at least “get out of the way” and not block Democratic efforts.

"Our markets are rattled, Americans' savings are on the line... our Republican friends need to stop playing Russian roulette with the economy," Mr Biden said.

The agreement comes as Democrats are still working to pass Mr Biden's massive infrastructure and social-spending bills.

Warring factions between progressive and moderate Democrats prompted US House of Representatives Speaker Nancy Pelosi to shelve a planned vote last week.