On Thursday, after days of talks that have brought little visible progress, President Obama told negotiators it is “decision time” and gave them until Saturday to evaluate their options and reach an agreement.
The president planned a separate televised meeting with journalists later Friday.
The two sides face an August 2 deadline to raise the $14.3 trillion legal limit on the amount of money Washington can legally borrow. Both sides agree there need to be cuts in spending to reduce the U.S. debt, but disagree on what programs to reduce. Republicans also oppose Mr. Obama’s plan to raise taxes on wealthy Americans and large corporations.
Without an agreement, the United States would not be able to pay some of its obligations after the deadline. If that happens, two major rating agencies have warned they will cut the nation’s credit rating. A lower credit rating means lenders would demand higher interest rates to finance U.S. debt, which would make the financial situation worse.
The top two leaders in the U.S. Senate are working on a proposal that will allow the president to raise the debt limit on his own without prior congressional approval. The plan being discussed by Democratic Majority Leader Harry Reid and Republican leader Mitch McConnell would give Mr. Obama the authority to raise the debt limit by $2.5 trillion in three separate installments, while imposing several trillion in spending cuts over the next decade.
Treasury Secretary Timothy Geithner has said “it’s time we move” on an agreement. Federal Reserve Chairman Ben Bernanke said failing to raise the debt limit would be a calamity. He has also warned making spending cuts too quickly could damage the fragile economic recovery.
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