US debt ceiling negotiations advance as the deadline draws near.

President Joe Biden and Republican House Speaker Kevin McCarthy have made progress toward a two-year agreement to control government spending and prevent a US debt default, giving rise to optimism that the world's largest economy's fiscal impasse would soon come to an end.

According to those who are familiar with the potential agreement, negotiations are expected to wrap up soon in order to avoid a June 1 deadline when the US could not have enough money to cover all of its debts.

The White House and Republicans on Capitol Hill both said the talks were going better throughout the day on Thursday, despite the fact that nothing had been resolved. Even if a compromise is made, sending it to Biden for his signature would still require possibly nerve-wracking votes in a closely divided Congress, which could push the uncertainty over the US's budgetary status well into next week.

In a positive tone, Biden stated on Thursday afternoon, "Speaker McCarthy and I have had several productive conversations and our staff continue to meet as we speak as a matter of fact — and they're making progress. I believe we’ll come to an agreement that allows us to move forward and protects the hardworking Americans of this country."

His remarks come a day after Fitch, the credit rating agency, issued a warning that it would lower the US' triple A rating as a result of the "brinkmanship" over the debt ceiling. There is growing concern that financial crisis may worsen in the coming days if a solution is not reached.

Rank-and-file party members have been urging Biden and McCarthy to resist making compromises in the last stages of the talks.

Even former president Donald Trump, who has urged Republicans to accept a default if Biden does not agree to significant spending cuts, spoke with McCarthy on the phone on Thursday. The top Republican lawmakers thereafter assembled in his office. "We’ve been talking to the White House all day, we’ve been going back and forth, and it’s not easy. It takes a while to make it happen, and we are working hard to make it happen," McCarthy said.

People with knowledge of the negotiations claim that the agreement would determine the direction of US fiscal policy through 2025, the year following the general election, when a new Congress and administration will be in power. On the Democratic side, Biden is seeking reelection; on the Republican side, the front-runners are Trump and Florida Governor Ron DeSantis.

On the table in the last stages of the negotiations are steps to speed up permitting of large infrastructure projects and add additional labor requirements to social safety net programs, in addition to lifting the debt ceiling and capping spending until then.

According to those with knowledge of the situation, the parties have also been debating whether to reduce funding for the Internal Revenue Service, the US tax collecting agency, which had just been established last year so it could better address tax avoidance and evasion among rich households.

House members are leaving for home for the long Memorial Day weekend, but they have been informed that they might need to quickly return to Washington. Chris Krueger, an analyst with TD Cowen's Washington Research Group, wrote in a note on Thursday that "The sand is nearly out of the hourglass for a potential debt ceiling deal."

Business organizations in Washington have been pleading with both parties to reach an agreement as soon as possible in order to avert a possibly catastrophic economic and financial hit.

Neil Bradley, the US Chamber of Commerce's chief policy officer, warned that things may become "really hairy" if an agreement isn't reached in the next 24 hours. "We’re in that window where you need things to go well."

The deputy Treasury secretary, Wally Adeyemo, bemoaned the fact that the standoff had come down to the wire during a speech he gave at an event earlier in the day that was sponsored by the Investment Company Institute.

"I think everyone’s goal is to make sure that we raise the debt limit. But the most important thing, as all of you in this room know [and] that the American people know, is that we shouldn’t be here. This is a manufactured crisis," he said.

By fLEXI tEAM