- By Bernd Debussmann Jr
- BBC News, Washington
President Joe Biden and Republican leaders have expressed cautious optimism that a deal to raise the U.S. debt ceiling will be reached following emergency talks at the White House.
But House Speaker Kevin McCarthy told reporters the two sides are still far apart.
The conflict has forced Mr. Biden to cut back on foreign travel.
Without a deal, the US could enter a catastrophic default on its $31.4tr (£25tr) debt as soon as June 1.
A default by the U.S. government on its debt obligations could trigger global financial chaos.
The Democratic leader called Tuesday’s hour-long Oval Office meeting “good, productive,” sounding upbeat about the prospects for a deal.
Mr McCarthy said he hoped a deal could be reached by the end of this week.
Asked about the risk of America falling on a fiscal cliff, the California congressman told BBC News: “The big thing about that question is that we’ve already taken default off the table.”
He also told reporters that a Biden-appointed representative would negotiate directly with his staff, which he said was a sign that “the structure of how we negotiate has improved.”
Several senior Democrats were at the talks, including Vice President Kamala Harris, Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries.
In exchange for support for raising the debt ceiling, Republican leaders are demanding budget cuts. They also want tougher work requirements for government aid recipients.
Citing sources familiar with the talks, The Associated Press reports that the idea was “emphatically” rejected by House Democrats at another meeting on Tuesday.
Mr Biden has repeatedly said that potential debt and budget issues should be kept separate.
The president is scheduled to fly to the G7 summit in Japan on Wednesday. He was then expected to visit Papua New Guinea and Australia.
But he will now return after the May 19-21 summit in Hiroshima to “ensure that Congress takes action” to avoid a default, the White House said in a statement.
The so-called Quad meeting in Sydney has now been canceled and the leaders will try to meet on the sidelines of the G7, Australian Prime Minister Anthony Albanese said.
Reaching the debt ceiling means the US government cannot borrow any more money.
This means the government will no longer be able to pay salaries to central and military employees. Social Security checks — the payments that millions of retirees in America rely on — will be cut off.
Every now and then the US Congress votes to raise or suspend the ceiling so it can borrow more.
A default — which would be the first in U.S. history — could shatter confidence in America’s political ability to pay its bills.
Experts have warned that this could see the US spiral into recession and trigger a rise in unemployment.
Treasury Secretary Janet Yellen said at an event on Tuesday that “A US default would create an economic and financial disaster.”
Meanwhile, White House National Security Council spokesman John Kirby said: “There are countries like Russia and China that would like nothing more than for us to default.”
A deal to avoid this scenario has so far proved elusive. In April, Republicans proposed a deal that would freeze the debt ceiling at $1.5tn or until March 31, whichever comes first.
In exchange, they would hold spending in key government agencies at levels for the next fiscal year 2022 and limit spending growth to 1% annually over the next 10 years.
They argued that this would lead to savings of $4.8tn.
However, the proposal would avoid many of Mr. Biden’s legislative priorities, including student loan forgiveness.
The last time the U.S. came close to default was in 2011, when lawmakers struck a deal just hours before the deadline.
That stance led to a downgrade in the U.S. credit rating, plunged the stock market and increased the government’s borrowing costs.
“Nobody should hold default hostage,” Senate Majority Leader Chuck Schumer said Tuesday at the U.S. Capitol. The consequences would be disastrous for America.
The U.S. debt ceiling has been raised, extended, or revised 78 times since 1960.