Barack Obama 'optimistic' over last-ditch 'fiscal cliff' deal

President has four days left to reach agreement with Republicans and stop sudden tax rises

President Obama said he was “modestly optimistic” that the US can avert the looming ‘fiscal cliff’ after a meeting with Congressional leaders last night.

Lawmakers have thus far failed to agree on an alternative to the more than $600bn (£370bn) in tax rises and spending cuts due to automatically come into force in the New Year, and hopes of a pact had been diminishing daily since negotiations broke down before Christmas.

But last night, Mr Obama signaled the possibility of a stripped-down deal after meeting with John Boehner and Mitch McConnell, the top Republicans in the House and Senate respectively, and their Democratic counterparts Nancy Pelosi and Harry Reid. The Oval Office discussion, described by the President as “constructive”, was also attended by the US Treasury Secretary, Tim Geithner.

The President said Mr Reid, the Democratic leader of the Senate, and Mr McConnell had agreed to work on a deal that could be passed in time, potentially on Sunday evening, when the House is scheduled to hold a special session. He added that if they failed to come to an agreement, he would ask Congress to vote on a basic package that would protect middle class Americans from tax hikes and maintain unemployment benefits for the more than 2 million who had been out of a job and claiming state aid for more than six months.

No details were forthcoming about the deal in the works in the Senate - but the Washington Post, quoting people briefed on the White House meeting, said the package would likely protect unemployment benefits and shield taxpayers form the alternative minimum tax, which would otherwise hit some 30 million households. Arguments, however, were said to be continuing on where to set the threshold for tax hikes, whether it should be $250,000, as the President initially proposed, or higher.

“I still want to get this done,” Mr Obama insisted after the meeting, which last just over an hour. Proclaiming that the “hour for immediate action is here, it is now,”he added: “Senators Reid and McConnell are working on... an agreement as we speak... But if an agreement isn’t reached in time ... then I will urge Senator Reid to being to the floor a basic package for an up or down vote.”

Mr Reid, who on Thursday warned that a deal was unlikely, also expressed guarded optimism last night, although he warned that a proposal hand’t yet been agreed. “We have a number of different directions we’re going to try to take and we’re going to see what can be worked out... We’ve got to do it now,” he said.

Mr McConnell said: “I’m hopeful and optimistic.” There was no immediate word from Mr Boehner.

Worst case scenario: No deal is struck...

* This week would be the last time that more than two million Americans who have exhausted the basic six months of state unemployment aid receive welfare payments as a special measure lapses.

* Americans on salaries between $40,000 and $65,000 would see their incomes shrink by an average of $1,500 a year. But the initial impact in January would be far less – an average of $130, according to the Tax Policy Center.

* The biggest risk of a delayed pact is to the stock market. Although it has been easing in recent days, investors have not displayed panic as they watch the negotiations. That could change at a moment's notice.