Washington (CNN) — Two steps forward, one step back.
A surge of optimism on Monday for a possible compromise to end the partial government shutdown and avoid a U.S. default as soon as this week got jolted by the sudden postponement of a White House meeting between President Barack Obama and congressional leaders.
In a brief statement, the White House said the meeting announced earlier in the day was postponed “to allow leaders in the Senate time to continue making important progress” toward a solution. Two hours later, sources in both parties said it was unlikely to happen on Monday.
It was unclear if the development signaled a problem or was needed to give more time for talks between Senate Majority Leader Harry Reid and his Republican counterpart, Mitch McConnell, to finish an agreement that could win approval in the Senate and the House.
Negotiations heated up with the Democratic and Republican leaders signaling progress toward a positive result.
“I’m very optimistic that we will reach an agreement that’s reasonable in nature this week to reopen the government, pay the nation’s bills, and begin long-term negotiation to put our country on sound fiscal footing,” Reid said about an hour before he and other Democratic and GOP leaders were to have met with Obama.
McConnell said he shared Reid’s optimism that “we’re going to get a result that will be acceptable to both sides.”
At the same time, both sides noted that nothing had been finalized.
Now, the postponement of the meeting with Obama and Vice President Joe Biden raised a new question mark in the process.
During a visit Monday to a local food kitchen, Obama cited progress in the Senate negotiations but also warned of what he called continued partisan brinksmanship by House Republicans who “continue to think that somehow they can extract concessions by keeping the government shut down or by threatening default.”
“My hope is a spirit of cooperation will move us forward over the next few hours,” Obama siad.
The political stalemate in Washington caused the government to start shutting down on October 1 because Congress failed to authorize spending for the new fiscal year, which started that day.
Another deadline looms on Thursday, when the Treasury says it will need Congress to raise the debt ceiling so it can borrow more money to pay all the government’s bills.
During his visit to Martha’s Pantry in Washington, Obama said the congressional leaders could “solve this problem today.”
He warned that a default, in which the government would lack enough cash on hand to pay down its debt obligations as well as other daily bills such as Social Security checks “could have a potentially devastating effect on our economy.”
“We’ve already had a damaging effect on our economy because of the shutdown,” he said. “That damage would be greatly magnified if we don’t make sure that government’s paying its bills, and that has to be decided this week.”
Sen. Joe Manchin of West Virginia told CNN early Monday that a deal was 70% to 80% done, while Republican Sen. Bob Corker of Tennessee cited progress in talks with Manchin and other colleagues from both parties.
However, Manchin and moderate GOP Sen. Susan Collins of Maine, who have spearheaded the bipartisan talks, warned more work needs to be done.
By late Monday afternoon, Manchin sounded assured that an agreement was at hand to prevent a default, saying the goal was to get at least 65 Senate votes — which would mean 10 or more from Republicans — to help Speaker John Boehner generate GOP backing in the House despite certain opposition from the tea party conservative wing.
According to Manchin, Reid and McConnell must work out specifics.
The two party leaders met twice in the morning and early afternoon, and they offered their optimistic assessments following their second face-to-face discussion. Boehner also dropped by McConnell’s office to get an update on the talks, his aide confirmed.
Democratic sources told CNN’s Dana Bash and Deirdre Walsh that the proposal under consideration by Reid and McConnell would fund the government through January 15, allowing it to reopen for at least three months or so.
At the same time, negotiations on a budget for the full fiscal year would have a deadline of reaching agreement some time in December, the sources said.
Meanwhile, the debt ceiling would be increased through February 15 to put off the threat of default for almost four months, according to the sources. The budget negotiations were expected to address deficit reduction measures and therefore could impact when the debt limit would need to be increased again.
In addition, provisions involving Obama’s signature health care reforms could be included, such as strengthening verification measures for people seeking federal subsidies to help them purchase health insurance required by the 2010 Affordable Care Act, the sources said.
Another possible change to the health care reforms would delay a fee on employers, unions and other plan sponsors that raise money to compensate insurance companies for taking on high-risk customers in the early years of Obamacare.
Early blowback from conservatives focused on the proposed budget talks, which would include flexibility to soften or eliminate forced spending cuts known as sequestration that were part of the agreement that resolved the last congressional showdown over the debt ceiling in 2011.
Corker said Democrats have retreated from a weekend push for the deal to wipe out the sequestration cuts, signaling progress on an issue that could have derailed agreement by both the Democratic-led Senate and the Republican-led House.
“It appeared the Democrats had wandered off the reservation and overreached over the last 48 hours,” said Corker, a veteran of many congressional budget battles.
However, a White House official said a goal for the agreement was to get time in the budget talks “to negotiate a buy down” of sequestration’s forced spending cuts.
CNN political analyst John Avlon said Monday that Democrats wanted to press what they perceive as an advantage over Republicans on how the public is perceiving the latest round of Washington budget and deficit brinksmanship.
“What’s behind it (are) poll numbers that saw Republicans getting their butt kicked because of this whole gamesmanship,” Avlon said.
Manchin said the brinksmanship was a chance to address what he called the “draconian cuts” of sequestration.
A new round of the across-the-board spending cuts for the military and other non-entitlement programs takes effect on January 15, he said.
As reported by CNN”s Bash and CNN Senior White House Correspondent Jim Acosta, the main sticking point for now involves how long an agreement would fund the government to end the shutdown and increase the debt limit to enable required federal borrowing.
Democrats want the debt ceiling increase to extend as long as possible to avoid similar showdowns in coming months.
At the same time, they seek a temporary spending plan to reopen the government while formal budget negotiations work out a longer-term agreement that can negate the impacts of the forced sequestration cuts.
Republicans, however, want a longer spending proposal that would lock in the planned sequestration cuts in coming months, with a shorter debt ceiling extension in order to negotiate further deficit-reduction measures.
Watching developments closely in Washington, Wall Street greeted news of apparent progress in the Senate positively. Stock indexes reversed an early day slide to close higher. Bond markets were closed for Columbus Day.
Political leaders were mindful of the impact on financial markets if they signaled possible failure to reach agreement that would avoid a default.
“I believe we can do it,” Democratic Sen. Dick Durbin of Illinois said Sunday on NBC’s “Meet the Press.” “I hope sensible people prevail, because at this point, it’s not just a shutdown and all of the damage it’s caused, but if we default on our debt, it will have a dramatic impact on the savings account, on the retirement account of average Americans.”
On the other side of the aisle, Republican Sen. Rob Portman of Ohio said he also thinks Congress will find a way out of the crisis before Thursday, when the United States hits the debt ceiling.
“We will have decided as a Congress that we need to avoid going over the debt limit, and we’ll figure it out. And it will probably be a relatively short-term solution,” Portman said.
A weekend of rejections
Despite the positive prognoses, the only actions over the weekend involved one “no” after another.
• Reid said Saturday the plan Collins was assembling was no longer on the table, because it treated reopening the government as a “concession.” Reid continues to demand that any plan include a “clean” bill, one that raises the debt limit and reopens the government with no strings attached. However, Manchin’s comments Monday indicated the Collins plan remained alive.
• Republicans blocked a measure to extend the debt limit with no strings attached, refusing to support a procedural vote that would have brought it to the Senate floor.
• House Republican leaders said Obama rejected their proposal for a six-week extension of the federal debt ceiling.
• Meanwhile, Republicans objected to the prospect being floated over the weekend that the forced spending cuts of sequestration, which have cut deeply into federal operations since March, might be rolled back under any eventual deal.
The Treasury Department said it will be unable to pay the government’s bills unless the debt limit is increased by Thursday.
Christine Lagarde, head of the International Monetary Fund, said Saturday the consequences of a failure to raise the debt limit would be dire for economies around the world. She spoke to CNN’s Richard Quest at an Institute of International Finance conference in Washington.
“You know, I’ve just spent the last two days with representatives of about 188 countries around the world. I wouldn’t say they are confident. I would say they are concerned, and they are very anxious to see this crisis resolved, because they know it’s going to impact on their economy,” Lagarde said.
Obama spoke by phone with House Minority Leader Nancy Pelosi on Sunday to discuss the ongoing battle over the shutdown, the White House said. The two agreed on the need for a “clean debt limit increase” and a “clean continuing resolution to open up the government and end the shutdown.”
Mindful that the Thursday deadline is days away, House Republican leaders are considering all their options even as Republican and Democratic Senate leaders try to craft a deal on the debt ceiling, said a GOP leadership aide, speaking on the condition of anonymity.
One option Republican leaders are considering is sending back a measure to the Senate that would increase the debt limit; exactly what it would contain is unknown at this time.
But the aide noted that the House is able to move quicker than the Senate, and this idea could come into play. If a decision were made to pursue this idea, then it would require Democratic support to pass in the House.
Senate Democrats meet with president
CNN’s Dana Ford, Greg Clary, Deirdre Walsh, Mark Preston, Chelsea J. Carter, Dan Merica, Brianna Keilar and Janet DiGiacomo contributed to this report.