US House Speaker Kevin McCarthy says he has reached an "agreement in principle" with President Joe Biden as they race to strike a deal to limit federal spending and resolve the looming debt crisis ahead of a June 5 deadline, according to the House speaker.
A deal to raise the federal government's $US31.4 trillion ($48 trillion) debt ceiling would end a months-long stalemate, but would also risk angering both Democratic and Republican sides with the concessions made to reach it.
"We still have a lot of work to do, but I believe this is an agreement in principle that's worthy of the American people," Mr McCarthy said.
"It has historic reductions in spending, consequential reforms that will lift people out of poverty into the workforce, rein in government overreach, there are no new taxes, no new government programs, there's a lot more within the bill."
Mr Biden and Mr McCarthy held a 90-minute phone call earlier on Saturday evening (local time) to discuss the deal.
"The agreement represents a compromise, which means not everyone gets what they want," Mr Biden said in a statement late on Saturday night (local time).
"That's the responsibility of governing."
Mr Biden called the agreement "good news for the American people, because it prevents what could have been a catastrophic default and would have led to an economic recession, retirement accounts devastated, and millions of jobs lost".
The deal would avert an economically destabilising default, so long as they succeed in passing it through the narrowly divided Congress before the Treasury Department runs short of money to cover all its obligations.
On Friday, Treasury warned that would occur if the debt ceiling was not raised by June 5.
Republicans who control the House of Representatives have pushed for steep cuts to spending and other conditions, including new work requirements on some benefit programs for low-income Americans and for funds to be stripped from the Internal Revenue Service, the US tax agency.
They said they wanted to slow the growth of the US debt, which was roughly equal to the annual output of the country's economy.
Exact details of the final deal were not immediately available, but negotiators have agreed to cap non-defence discretionary spending at 2023 levels for two years, in exchange for a debt ceiling increase over a similar period, sources told Reuters earlier.
The two sides have to carefully thread the needle in finding a compromise that can clear the House, with a 222-213 Republican majority, and Senate, with a 51-49 Democratic majority.
Default could trigger recession
The long stand-off spooked financial markets, weighing on stocks and forcing the United States to pay record-high interest rates in some bond sales.
A default would take a far heavier toll, economists say, likely pushing the nation into recession, shaking the world economy and leading to a spike in unemployment.
Mr Biden for months refused to negotiate with Mr McCarthy over future spending cuts, demanding that politicians first pass a "clean" debt-ceiling increase free of other conditions, and present a 2024 budget proposal to counter his issued in March.
Two-way negotiations between Mr Biden and Mr McCarthy began on May 16.
Spending matches annual economic output
Democrats accused Republicans of playing a dangerous game of brinkmanship with the economy.
Republicans say recent increased government spending was fuelling the growth of the US debt, which is now roughly equal to the annual output of the economy.
The last time the nation got this close to default was in 2011, when Washington also had a Democratic president and Senate and a Republican-led House.
Congress eventually averted default, but the economy endured heavy shocks, including the first-ever downgrade of the United States' top-tier credit rating and a major stock sell-off.
This time around, Mr McCarthy had strengthened his hand by overseeing passage of an April bill that paired $US4.8 trillion ($7.4 trillion) in spending cuts with a $US1.5 trillion ($2.3 trillion) debt-ceiling hike.
The bill had no chance of passing the Democrat-controlled Senate, but showed that Mr McCarthy had the ability to hold together his thin majority just four months into his top leadership role.
