Talks to resolve the US debt ceiling crisis remain deadlocked prompting credit agency Fitch to place the US' gold-plated AAA credit rating on negative watch.
White House Press Secretary Karine Jean-Pierre said talks "remain productive."
"There's a path to move forward," she said. "We believe that we can get to a solution here. We can get to a bipartisan, reasonable agreement."
The alternative, Jean-Pierre warned, is "catastrophic impacts in every single part of this country."
Neil Wilson at markets.com described the situation as a “charade and a mess.”
“Unless a deal gets done before Jun 1st or Jun 8th, then we could be heading for a protracted debt ceiling standoff that lasts months,” he feared.
Leading credit agency Fitch said it has placed the US 'AAA' credit rating on rating watch negative to reflect the debt ceiling “brinkmanship.”
“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date,” Fitch said.
The agency still expects a deal to be done but said the risks “have risen that the debt limit will not be raised or suspended before the x-date.”
“The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to US creditworthiness.”
The wrangle revolves around an annual accounting manoeuvre that Congress performs to adjust funding levels.
President Joe Biden’s Democrats say that Congress needs to approve automatically what's known as a "clean" debt ceiling raise – that is, to authorize more government borrowing to cover expenses already committed to, but not funded, in the budget.
The Republicans, increasingly dominated by a hard right faction loyal to ex-president Donald Trump, have decided to use this generally mundane procedure as leverage to force Biden into accepting severe spending cuts, notably targeting social programmes.
Republicans say the cuts are needed to rein in out-of-control government spending. Biden's negotiators say they are ready to discuss taming the budget, but not when Republicans are holding the debt ceiling "hostage."
In the latest negotiating offer, Treasury Secretary Janet Yellen proposed to freeze government spending at current levels, something that she said would reduce the deficit by USD1 trillion.
"The president's budget that he put forward actually proposes USD3 trillion worth of deficit reduction over 10 years," Yellen said at a Wall Street Journal event on Wednesday.
House Speaker Kevin McCarthy, the top Republican in Congress, again ruled out passing a "clean" debt ceiling hike, but also said he thought progress would be possible.
"I am not going to give up. We're not going to default. We're going to solve this problem. I will stay with it until we can get it done," he told reporters.
"But let's be honest about this: We have to spend less than we spent last year. It is not my fault that the Democrats cannot give up on their spending."