Democratic and Republican leaders in the US senate were set to announce a deal yesterday to extend the government's borrowing authority until February 7 and re-open federal agencies closed since October 1, a senate aide said.
The development came after a chaotic day in which two House plans failed and Fitch Ratings warned it could cut the sovereign credit rating of the US from AAA.
Fitch's warning cited the political brinkmanship over raising the federal debt ceiling, and helped underscore how close to an economically damaging default Washington had come.
The aide said the latest senate deal would also fund the government through January 15 as well as establish a deficit reduction panel to deal with broader fiscal issues.
The aide said lawmakers in the senate were discussing ways to speed up the process so that the Republican-controlled House could get an opportunity to act before a deadline tomorrow when the Treasury Department said it would bump up against its borrowing limit, risking the nation's ability to pay bills and creditors.
"They are still working on the details between senators McConnell and Reid. We are making good progress," said senator Dick Durbin, the second-ranking Senate Democrat, referring to senate majority leader Harry Reid and Republican minority leader Mitch McConnell.
House approval of any plan from the senate remained uncertain however. Earlier in the day, Republicans in the House rejected a proposal with elements of the one being developed Reid and McConnell.
But the House was unable to come up with a plan of its own. In a span of a few hours, two plans floated by Republicans in the fractious House collapsed for a lack of support.
Both House plans failed to satisfy President Barack Obama, senate Democrats or the small-government Tea Party wing of the Republicans, who are determined to win changes to the president's signature healthcare law before they will agree to concessions on the budget.
If Congress fails to reach a deal by tomorrow, cheques would probably go out on time for a short while for everyone from bondholders to workers who are owed unemployment benefits.
But analysts warn that a default on government obligations could quickly follow, potentially causing the US financial sector to freeze up and threatening the global economy.
The US treasury department seized on Fitch's downgrade threat to press Congress. "The announcement reflects the urgency with which Congress should act to remove the threat of default hanging over the economy," a Treasury spokesperson said.
After the Fitch announcement, S&P 500 futures fell 9.6 points while Dow Jones industrial average futures sank 60 points and Nasdaq 100 futures fell 7.5 points. - Reuters
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Original headline: Senate close to deal
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