US lawmakers were close to a last-gasp $3 trillion deal to raise the US borrowing limit and assure jittery financial markets that the US will avoid a potentially catastrophic default.
The possibility of an agreement raised hopes that a weeks-long partisan brawl over cutting the US deficit might be staggering to a close.
There are just two days left to lift the debt ceiling, which caps how much money the US can borrow to pay its bills.
‘We're really, really close to an agreement,’ said Mitch McConnell, the Senate Republican leader who is playing a key role in the negotiations on a plan to reduce the deficit and permit a vote to raise the debt ceiling.
Democrats were more cautious of the deal that Republicans said would cut deficits by up to $3 trillion over a decade. It would force Democrats to stomach deep spending cuts without the tax increases they wanted.
‘We're not there yet,’ Senate Majority Leader Harry Reid said.
David Plouffe, a senior adviser to President Barack Obama, said there was general agreement on a plan that would cut the US deficit over 10 years in two stages: roughly $1 trillion up front and the rest based on the recommendation of a joint bipartisan committee.
The proposed $3 trillion in savings may calm financial markets but it appears insufficient to avoid a downgrade of America's top-notch AAA rating by Standard & Poor's.
The agency last week reiterated that $4 trillion in deficit-reduction measures would be ‘a good downpayment’ to show that Washington was putting the country's finances in order.
‘It's really unclear whether a downgrade will be avoided as a result of this deal,’ said Kathy Lien, director of currency research at GFT, New York.
British and Japanese officials warned of disastrous consequences for the global economy if the last-ditch talks among lawmakers in Washington failed to agree on raising the US borrowing limit and averting a debt default.
Governments across the world fear that because of the key role of the US dollar in global banking and trading systems, there could be severe instability when Asian financial markets reopen on Monday if a US debt deal is not in sight by then.
Even if the two sides reach a deal, it still has a long way to go.
Backers of a deal will have to tread a careful path in both the Democratic-led Senate and the Republican-held House of Representatives to get sufficient support for passage.
House Speaker John Boehner, the top US Republican, told House Republicans in an email the talks were moving in the right direction ‘but serious issues remain’.
Mr Boehner faces pressure to placate conservative Tea party movement-aligned lawmakers in his caucus.
