The threat of a US default was raised a notch on Friday after a "pause" in debt ceiling talks between the White House and the Republican opposition as the two sides wrangle with deep disagreements.
Negotiators for President Joe Biden have been locked in talks with Republicans as they seek a deal to raise the US borrowing limit and allow the world's largest economy to avoid defaulting on its debt repayments.
"We've got to pause," Republican leader Kevin McCarthy told reporters in Congress, adding, "we can't be spending any more money next year."
A default could ignite a firestorm in global markets, with investors nervously watching as the talks have unfolded.
US stock indexes, which had been trending higher, changed course later Friday on the news.
Republicans say Biden must sign up to spending cuts in exchange for their support to raise the debt ceiling, ignoring repeated Democratic calls for a "clean" increase of the borrowing limit with no strings attached.
Democrats have framed the talks as an opportunity to discuss the upcoming budget ahead of June 1, when the Treasury predicts the US could start defaulting on its debts, with dire economic consequences.
On Friday, the White House said significant problems remained between the two sides over the budget.
"There are real differences between the parties on budget issues and talks will be difficult," a White House official said in a statement, adding: "the president's team is working hard towards a reasonable bipartisan solution that can pass the House and the Senate."
Rolling back spending
The unexpected pause to the talks came just a day after McCarthy voiced optimism that he could get a bill on the floor by next week, although he indicated that an in-principle agreement would likely need to be in place by Sunday or Monday for that to happen.
On Friday, Republicans' chief negotiators in the talks, congressmen Garret Graves and Patrick McHenry, abruptly left a negotiating session alongside McCarthy and have no plans to return, the Punchbowl News political website reported.
"We have a gap on many issues," McHenry said, according to NewsNation.
The main sticking point was reportedly the rolling back of federal spending to 2022 demanded by House Republicans' right-wing Freedom Caucus, which accounts for around a fifth of the membership.
In total, the cuts to federal agencies and programs demanded by Republicans in exchange for their support to lift the debt ceiling are worth around US$130 billion (RM590 billion).
They also want to expedite domestic energy production projects, simplify the process for obtaining permits for pipelines and refineries and claw back unspent Covid relief funding.
As the deadline draws closer, Democrats in both chambers of Congress have been voicing increasing disquiet over Republican demands, threatening to withdraw their support over proposals to impose tougher work requirements on recipients of certain benefits.
"Republicans are threatening to tank our economy unless we slash Medicare, evict thousands from public housing, & put almost a million Americans out of work," tweeted Congressional Hispanic Caucus leader Nanette Barragan.
"Their plan puts politics over people. We must pass a clean debt ceiling now."
Biden, who is at the G7 summit of world leaders in Japan, is cutting short his trip to the region and returning to Washington on Sunday to try to secure a deal.