WASHINGTON (MNI) – The following is a roundup of key developments
and events Tuesday as Congress finally passed legislation raising the
U.S. debt ceiling:

* Enactment of legislation to raise the debt ceiling Tuesday
averts an economically damaging debt crisis in the very near term, but
it leaves plenty for the Federal Reserve to worry about. Passage of the
$2.4 trillion debt deal means the Fed will not have to engage in various
acrobatics to assist the Treasury in paying its bills. But it faces
larger challenges in the months and years ahead as it tries to cope with
a struggling economy.

* With the uncertainty of a U.S. default lifted, President
Obama Tuesday called on lawmakers to shift the focus back to ways in
which spark economic growth and get millions of Americans back to work.
“I’ll be discussing additional ideas in the weeks ahead to help
companies hire, invest, and expand,” Obama said in a prepared statement
after the Senate passed the Budget Control Act of 2011. He acknowledged
the detrimental effect that the debt impasse had on the economic
recovery, saying the nation did not need lawmakers to “come along with a
manufactured crisis to make things worse.”

* Even if the $2.4 trillion in promised deficit reduction is
actually achieved — and there is no guarantee that it will be — it is
far short of the $4 trillion minimum which was deemed necessary to avoid
a debt downgrade. The real issue, as far as Standard & Poor’s and other
ratings agencies were concerned, is not whether or not the debt ceiling
would be raised but whether conditions were attached to sufficiently
slow growth of the debt in the future. Without “credible” and
“meaningful” reductions in deficit spending, the U.S. government was
warned, there was a strong possibility that it would lose its AAA
rating. That would mean economically damaging increases in interest
rates and pressure on the Fed to use unconventional monetary tools to
resist them.

* As for the final debt ceiling package, there is general
relief among budget experts that a U.S. default was avoided but also
broad agreement that the final package is a disappointment. Analysts
agree that the debate on the debt ceiling was a fierce, months-long
battle in which both parties largely clung to their traditional fiscal
talking points. Budget experts say few lawmakers showed much flexibility
in their views or moved off long-held positions.

* Fitch Ratings Tuesday said the United States, as in much of
Europe, must also confront tough choices on tax and spending against a
weak economic back drop if the budget deficit and government debt is to
be cut to safer levels over the medium term. “At a time of heightened
concerns regarding the creditworthiness of sovereign governments in
mature industrialized economies, it is essential that a credible
multi-year deficit reduction plan is articulated and implemented. On
current trends Fitch projects that U.S. government debt, including debt
incurred by state and local governments as well as the federal
government, will reach 100% of GDP by the end of 2012, and will continue
to rise over the medium term – a profile that is not consistent with the
United States retaining its ‘AAA’ sovereign rating.”

* The U.S. Senate Tuesday approved compromise legislation
raising the debt ceiling, sending it to President Obama for his
signature and ending a months-long political battle. The Senate approved
the bill on a 74 to 26 vote. Before the final vote, Senate Majority
Leader Harry Reid said the final package was an “imperfect compromise”
that begins the hard work of cutting deficits. He said further steps
will require “equal sharing” in which both spending cuts and additional
revenues will be needed. “There must be a sharing of sacrifice,” he
said. Senate Minority Leader Mitch McConnell said the legislation
reflects many of the goals of congressional Republicans to control
spending. “We have changed the debate. We’re headed in the right
direction,” McConnell said, adding “much work remains.”

* In a statement Tuesday, IMF Managing Director Christine
Lagarde Tuesday welcomed the agreement to raise the U.S. government’s
borrowing limit and cut the budget deficit. “By reducing a major
uncertainty in the markets and bolstering U.S. fiscal credibility, this
agreement is good for both the U.S. and the global economy,” she said.
“Given the fragility of recovery, the planned spending cuts are
appropriately phased and not overly frontloaded so as not to undermine
growth.” Lagarde said the challenge now for U.S. policymakers is to
develop a consolidation framework that includes clear medium-term debt
and deficit objectives.

–Editor: Brai Odion-Esene; besene@marketnews.com

** Market News International Washington Bureau: 202-371-2121 **

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