Just 10days before a potentially hugely damaging debt default by the United States, crucial talks on raising the amount of money the country can legally borrow ended without agreement.
Both US president Joe Biden and the Republican speaker of the House of Representatives Kevin McCarthy described their meeting on Monday as “productive”.
However, Mr McCarthy said: “We don’t have an agreement yet.”
At the same time Mr McCarthy sounded an optimistic note.
“I believe we can still get there. I believe we can get it done”, he said.
Mr Biden said in a statement that he and the speaker had “reiterated once again that default is off the table and the only way to move forward is in good faith toward a bipartisan agreement”.
Mr Biden said that there were “areas of disagreement” but that both the White House and Mr McCarthy’s team would “continue to discuss the path forward”.
The meeting at the White House on Monday evening in Washington came just over an hour after the US treasury secretary Janet Yellen warned that unless Congress raised or suspended the official debt limit, it was “highly likely”. that the US Government would no longer be able to satisfy all of its obligations “by early June, and potentially as early as June 1″.
At present the US government is limited by law to borrowing no more than $31.4 trillion (€28.5 trillion).
Republicans who control the House of Representatives are seeking to use the debt ceiling issue as leverage to secure reductions in overall federal government spending.
Speaking before the start of the meeting the president again suggested that raising revenue should form part of the equation as long as it did not involve increasing taxes on those earning less than $400,000.
Mr McCarthy, however, ruled out any rise in taxation.
Republicans want, in exchange for increasing the debt limit, to bring spending back to 2022 levels , put in place new work requirements for some support programmes for low-income Americans and to claw back some Covid-19 aid which had been previously authorised by Congress but not yet spent.
Republicans also want to protect military spending which would mean deeper cuts to other areas of the federal budget.
Democrats are anxious to safeguard social programmes and some have argued that the president should by pass Congress and invoke the 14th amendment to the US Constitution to raise new debt unilaterally.
This amendment states that the “validity of the public debt, authorised by law ... shall not be questioned”. Some US legal experts have argued that this allows the treasury to continue to borrow in excess of the official debt limit as it would be unconstitutional for the US not to make its scheduled payments.
Ms Yellen warned in her letter to Congress that the US was already facing higher costs as a result of the uncertainty over the debt ceiling and cautioned against continued brinkmanship.
She said there had been a substantial increase in the treasury’s borrowing costs for securities maturing in early June.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers and negatively impact the credit rating of the United States.”
Even if a deal on spending is reached, politicians in Washington will be in a race to introduce legislation to give effects to its provisions in time before the US Government runs out of money.
The White House has warned that in a protracted default, the US could lose more than eight million jobs while the domestic and international economy would be plunged into turmoil.