Following emergency negotiations at the White House, President Joe Biden and Republican leaders expressed hope that an agreement to extend US debt ceiling is within sight.
Meanwhile, the House of Representatives speaker, Kevin McCarthy, warned reporters that the two sides remain far apart.
Mr Biden had to cut short a vacation abroad due to the deadlock.
Without a deal, the US could start defaulting on its $31.4 trillion (£25 trillion) debt as early as June 1.
The US government’s inability to pay its debts could lead to financial instability on a worldwide scale.
The Democratic president, sounding optimistic about the chances of a compromise, described Tuesday’s hour-long Oval Office discussion as “good, productive.”
McCarthy later stated that he thought an agreement can be reached by ending of this week.
The California congressman responded to a query about the possibility of the US going over a fiscal cliff by telling BBC News: “The great thing about that question is we’ve already taken default off the table.”
Additionally, he told reporters that a Biden-appointed person will negotiate face-to-face with his staff was evidence that “the structure of how we negotiate has improved.”
Vice President Kamala Harris, Senate Majority Leader Chuck Schumer, and House Minority Leader Hakeem Jeffries were among the prominent Democrats present for the talks.
Republican leaders are requesting budget concessions for their support for lifting the debt ceiling. They also want stricter labour requirements for those receiving government assistance.
The Associated Press news agency cites sources familiar with the discussions to say that House Democrats “resoundingly” rejected this plan during an earlier meeting on Tuesday.
On Wednesday, the president is scheduled to depart for the G7 conference in Japan. He was then scheduled to travel to Australia and Papua New Guinea for additional discussions.
The White House said that he will now return after the 19–21 May summit in Hiroshima to “ensure that Congress takes action” to avert a default.
According to Australian Prime Minister Anthony Albanese, the leaders would try to meet during the G7 as a substitute for the so-called Quad meeting that had been scheduled for Sydney.
The US government would be unable to borrow any more money if the debt ceiling was reached.
This implies that the federal and military workforces’ salaries would no longer be able to be paid by the government. Millions of American retirees depend on Social Security checks, which would stop.
The US Congress votes to increase or suspend the ceiling periodically so that it can borrow more money.
Trust in America’s political ability to pay its bills might be destroyed by a default, which would be the first in US history.
Experts have cautioned that it might also cause the US to enter a recession and increase unemployment.
At a gathering on Tuesday, Treasury Secretary Janet Yellen stated that “a US default would generate an economic and financial catastrophe.”
John Kirby, a spokesperson of White House National Security Council, added: “There are nations like Russia and China that would love nothing more than for us to default.”
In return, they agreed to keep expenditure at important government agencies at 2022 levels for the next fiscal year and to cap future spending growth at 1% per year for the following ten years.
They claimed that doing so would save $4.8 trillion.
However, the approach would undermine a number of Mr. Biden’s legislative initiatives, such as student loan forgiveness.
In 2011, when the US was on the verge of default, policymakers reached a compromise before the deadline.
This impasse caused the US credit rating to be downgraded, the stock market to crash, and higher borrowing costs for the government.
Chuck Schumer, the majority leader of Senate, stated in the US Capitol on Tuesday that “nobody should use default as a hostage.” “America would suffer devastating effects,”
Since 1960, there have been 78 increases, extensions, or revisions to the US debt ceiling.
