WASHINGTON, Feb 2, 2023 (BSS/AFP) - The United States took a small step back from the risk of a catastrophic debt default Wednesday after the new Republican speaker of the House of Representatives, Kevin McCarthy, said talks with President Joe Biden went well -- even if a deal has yet to be reached.

"The president and I tried to find a way that we can work together," McCarthy told reporters after an approximately one-hour meeting with Biden at the White House. "I think at the end of the day, we can find common ground."

McCarthy said that while it was a "good discussion," he cautioned that there were "no agreements, no promises, except we will continue this conversation."

The White House also sounded positive, saying in a statement that Biden and McCarty had "frank and straightforward" talks and "agreed to continue the conversation."

At stake is the stability of the world's biggest economy.

Republicans are threatening to block the usually rubber-stamp approval for raising the nation's credit limit if Democrats don't first agree to steep future budget cuts.

The White House, meanwhile, accuses the Republicans of taking the economy "hostage" in order to posture as fiscally responsible.

Fail to raise the debt ceiling by around June, the Treasury says, and the United States will be forced into default on its $31.4 trillion debt -- a historic first that would leave the government unable to pay bills, undermine the US economy's reputation, and likely panic investors.

McCarthy said Republicans and Democrats have about five months to talk before reaching the debt cliff, but "hopefully it doesn't take that long."

Federal Reserve Chair Jerome Powell urged Congress to raise the debt ceiling, calling it the only way forward.

"No one should assume that the Fed can protect the economy from the consequences of failing to act in a timely manner," Powell told reporters Wednesday.

There have been other showdowns over the years when Republicans balked at allowing US debt to spiral ever higher. But on most occasions the dispute was quickly smoothed over, Congress extended the ceiling and the economy kept going without a hiccup.

This time, the political heat makes things far riskier.

Two years through his first term, Biden is widely expected to be on the cusp of announcing his bid for a second term in the 2024 election. And Republicans, who have just taken over control of the House, are eager to show their muscle.

Even if McCarthy is minded to show flexibility, his power in Congress depends almost entirely on the desires of a far-right group of Republicans who are more likely to play chicken, regardless of the global financial consequences.

- Budget brass tacks -

The White House says it won't allow the current debt ceiling to be part of any negotiation on future government spending because that $31.4 trillion is money already agreed to by Congress. In other words, refusal to raise the debt ceiling would be like refusing to pay an already existing credit card bill.

There could be room for negotiating on changes to future budgets.

McCarthy said he had told Biden that he was against defaulting on the existing debt but that he wanted to see cuts in future spending, because "the current path we're on we cannot sustain."

But when it gets down to brass tacks, it's hard for either party to say where they can find significant reductions -- unless they go into the usually politically untouchable Social Security, Medicare, Medicaid or other government-subsidized healthcare.

Biden signaled he wanted to call McCarthy's bluff by insisting that the Republicans lay out where exactly they'd make cuts. His bet is that the internal divisions in the party will burst into the open as more right-wing members demand cuts to popular spending programs.

"What are House Republicans hiding?" deputy press secretary Andrew Bates said.

In a memo Tuesday, Brian Deese, the director of the National Economic Council, and Shalanda Young, director of the Office of Management and Budget, challenged McCarthy to publish a draft budget. The White House will issue its own on March 9, they said.