President Joe Biden pictured at the White House wearing sunglassesImage source, EPA

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President Biden at the White House on Thursday - when he spoke of "several productive conversations" with top Republican Kevin McCarthy

By Chloe Kim & Natalie Sherman

BBC News

US President Joe Biden says progress has been made in talks with top Republican Kevin McCarthy over the US debt ceiling - even as Congress breaks up for a holiday weekend.

The pair aim to reach a deal on raising the government borrowing limit for two years so it can keep paying its bills.

A US debt default - with a 1 June deadline looming - would upend the economy and have a global impact.

Mr Biden spoke of "several productive conversations" with Mr McCarthy.

The deal being reached could mean both sides can point to wins - Republicans on curbs to spending and Democrats on protecting key domestic programmes.

During a White House event on Thursday, the president said his staff remained in conversation with the team of Mr McCarthy, the House speaker - and that the two sides were "making progress".

He added: "I made clear time and again defaulting on our nation debt is not an option." He said Americans deserved certainty over issues such as social security payments.

The debt ceiling is a spending limit set by Congress which determines how much money the government can borrow - an issue on which Democrats and Republicans disagree.

With no deal yet struck, the Treasury has warned that the US will not have enough money to pay all of its bills as soon as 1 June.

Analysts say there could be severe economic consequences if the US fails to honour its obligations.

'Two-year deal'

A US official told Reuters that the White House was considering scaling back an increase of the Internal Revenue Service to hire more auditors, which was intended to target wealthy Americans.

The Times reported negotiators were closing in on a deal that would raise the debt limit for two years while imposing strict caps on spending, with the military and veterans' budgets protected from caps.

Republicans are seeking spending cuts in exchange for raising the $31.4tn (£25tn) cap on government borrowing.

Mr McCarthy - who leads Republicans in the House and has been the most high-profile public face of the talks for his party - earlier said Democrats and Republicans had worked past midnight on Wednesday and would continue to negotiate.

"There's a couple of issues still hanging out there that we've got to get done," he said. "We're gonna work 24/7 to try to make that happen."

Another key Republican said he believed a deal to raise the nation's debt-ceiling deal was "likely" by Friday afternoon.

"We are inching closer to a deal. I think it's some of the finer points they are working on right now," Rep Kevin Hern told Reuters news agency. "You are likely to see a deal by tomorrow afternoon."

"Neither side is going to get exactly what they want," White House press secretary Karine Jean-Pierre said.

The S&P 500 and the Nasdaq were trading higher at midday on Thursday, lifted by positive updates on earnings from some companies, while the Dow Jones Industrial Average was down about 0.6%.

That followed several days of declines.

Any agreement formed between the two sides will need to be turned into a legislative text to be approved by Congress.

Mr McCarthy has promised to give lawmakers 72 hours to review the bill, and at least 24 hours' notice if they have to return to Washington early. If a deal is reached this week, a vote could happen early next week.

There is little wiggle room for objections to be raised, as the Senate would also have to vote on the bill, which would then go to the White House for signing.

Lawmakers could also temporarily lift the debt cap to give the talks more time.

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