The US House speaker Kevin McCarthy and president Joe Biden said they had a “productive” discussion on the debt ceiling late on Monday at the White House but that no deal had been reached, as the government seeks to avoid a potentially catastrophic economic event.
If the debt limit is not raised, the US government will default on its bills: a historic first likely to have catastrophic consequences. Federal workers would be furloughed, global stock markets would be likely to crash and the US economy would probably drop into recession. The treasury secretary, Janet Yellen, has said this will happen on or around 1 June if no deal to raise the $31.4tn debt ceiling is reached.
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McCarthy leads Republicans demanding harsh spending cuts in return for raising the ceiling. Democrats fear Republicans are willing to allow talks to fail whatever the cost, seeing a default as a price worth paying for beating Biden next year.
Biden has said he will consider spending cuts but has called Republican proposals “extreme” and “unacceptable”, saying he will not back subsidies for big energy companies and “wealthy tax cheats” or put healthcare and food assistance at risk.
At the start of the White House meeting on Monday evening, the president told reporters: “We both talked about the need for bipartisan agreement.”
He also said he “was optimistic we’re going to make some progress” but said both sides need a bipartisan agreement to “sell it” to their constituencies. There may still be some disagreements, Biden said.
Seated beside the president in the Oval Office, McCarthy said: “I think at the end of the day we can find common ground” but differences remained.
Following the meeting, McCarthy characterized the negotiations as positive, saying that the pair had a “productive discussion” but that “we don’t have an agreement yet.
“The time of spending, just spending more money in America and government is wrong,” said McCarthy after the Oval Office meeting. He said their staffs would continue talks and added: “I believe we can still get there.”
In a brief post-meeting statement, Biden called the session productive but merely added that he, McCarthy and their lead negotiators “will continue to discuss the path forward”. Biden said all agreed that “default is not really on the table”.
Earlier, in a message seen by the Guardian, a senior Democratic Senate staffer predicted disaster.
“I think we will” default, the staffer said. “I think most House Republicans want a default so even if McCarthy could make a deal he won’t have the votes to pass it.”
Staff-level talks paused on Friday, after Republicans rejected a White House offer to impose spending freezes rather than cuts. On Sunday, returning from the G7 summit in Japan, Biden told reporters a conversation with McCarthy from Air Force One “went well”. The next day, McCarthy said staff-level talks would continue.
He later told reporters: “I firmly believe what we’re negotiating right now, a majority of Republicans will see that it is a right place to put us on the right path. We can get a deal tonight. We could get a deal tomorrow but you got to get something done this week to be able to pass it and move it to the Senate.”
It will take several days to move legislation through Congress.
Yellen said again on Monday the earliest estimated default date was 1 June and it was “highly likely” the treasury would no longer be able to meet all obligations if the debt ceiling was not raised.
The debt ceiling was imposed in 1917, a response by Congress to US entry into the first world war. For most of the next 100 years, raising the ceiling was a formal process, if often subject to political grandstanding.
Under Donald Trump, Republicans raised the ceiling three times while contributing to rising debt with spending increases and tax cuts for richer Americans.
Now, under McCarthy but drawing inspiration from a 2011 standoff in which Republicans under the then speaker, John Boehner, extracted major concessions from Barack Obama, the GOP is presenting itself as the party of budget hawks.
On Sunday the lead Republican negotiator, Garret Graves of Louisiana, told reporters: “A red line is spending less money. And unless and until we’re there, the rest of it is really irrelevant.”
Trump, the clear frontrunner for the Republican presidential nomination, has said the US should default if Biden will not concede to demands that would hobble much of his signature domestic legislation.
As the far right of the Republican House caucus remains loyal to Trump, so it exerts its hold on McCarthy after stretching the process by which he became speaker through 15 rounds of voting.
Republicans control the House 222-213. Democrats hold the Senate 51-49.
Related: Democrats to urge Biden to use 14th amendment powers to avert ‘global economic catastrophe’
Democrats have pondered an attempt to peel off Republican moderates, most in seats in areas won by Biden in 2020, and pass their own spending package.
Biden has been urged to invoke the 14th amendment to the constitution, which says “the validity of the public debt of the United States shall not be questioned”, as a way to bypass House Republicans and stave off default.
The president has said he thinks he has the authority to do so but fears Republican appeals would snarl the process in the courts, leading to a default regardless.
On Monday, investors awaited updates.
“We expect a resolution to be reached before the deadline, but anticipate unforeseen developments throughout the process,” Bruno Schneller, a managing director at Invico Asset Management, told Reuters.