President says talks 'good and constructive' but if deal cannot be struck by Sunday Senate will have to vote on fallback proposal

President Barack Obama has demanded that Senate leaders strike a fiscal cliff deal by Sunday to avert the looming US economic crisis, or face a vote based solely on his own measures.

Speaking after a short meeting on Friday afternoon with Congressional leaders, the president expressed frustration with the slow pace of talks. "This is déjà vu all over again," said Obama.

"The hour for immediate action is here, it is now. We are now at the point where, in just four days, every Americans' tax rates are set to go up," he said, adding: "The American people are watching what we do here. Obviously their patience is already thin."

Obama met with House speaker John Boehner and Senate minority leader Mitch McConnell, as well as Democrat colleagues Nancy Pelosi and Harry Reid, in the hope of thrashing out a deal. Treasury secretary Tim Geithner was also in attendance.

The president described the talks as "good and constructive", but added that the way Washington works must seem to be "mind-boggling" to those outside the capital.

If no deal is done, 88% of Americans will see their taxes rise on January 1, a wave of deep spending cuts will start to take effect, and 2 million long-term unemployed people will lose their benefits.

Obama said he had asked Reid and McConnell to draw up a Senate bill. But in the event of no deal being struck, he has also instructed Reid to draw up a basic package to be put before the floor for an "up or down vote".

That bill would be based solely on his own remedy to the immediate fiscal crisis facing the US at year end. Nonetheless, Obama expressed a belief that such a bill could pass both the House and Senate.

Obama said the measures would protect "the middle class from an income tax hike, extends the vital lifeline of unemployment insurance to two million Americans looking for a job and lays the ground work for future cooperation on more economic growth a deficit reduction."

McConnell said he was "hopeful and optimistic" that a deal could be done. "We will be working hard to see if we can get this done in the next 24 hours," he said after the meeting.

Boehner released a statement after the meeting: "The leaders spent the majority of the meeting discussing potential options and components for a plan that could pass both chambers of Congress. The Speaker told the President that if the Senate amends the House-passed legislation and sends back a plan, the House will consider it – either by accepting or amending. The group agreed that the next step should be the Senate taking bipartisan action."

Friday's moves came after a day of bitter recriminations on Thursday, there were small signs of hope Friday ahead of the White House meeting, as senior senators said they believed a deal could be brokered. "I am hopeful there will be a deal that avoids the worst parts of the fiscal cliff – namely taxes going up on middle-class people," Democrat Chuck Schumer told NBC's Today show. "I think there can be, and I think the odds are better than people think there could be."

"I think in the end we'll get a deal," said Republican John Thune. "The question is the timing of that. It is encouraging that sides are sitting down. They continue to have lines of communication there, and I view that as optimistic."

Scepticism remains about the chances of a deal being done. Tennessee Republican Bob Corker told reporters prior to the meeting that while he expected a new offer from Obama, "it's feeling very much like an optical meeting, not a substantive meeting."

In the US, stock markets fell for the fifth straight day, as investors waited nervously for the latest twists in the slow-moving drama. The Congressional Budget Office has warned that going over the fiscal cliff will push the US back into recession, and drive unemployment up to 9.1% from its current rate of 7.9%.Sean West, a policy analyst at Eurasia Group, a political risk consultancy, said he was still hopeful a deal could be done. "We think the best-case scenario is that they will leave the meeting voicing cautious optimism. Everyone is looking for signs of progress. If they can't signal that things are different from last week, that would be a very bad situation," he said.

Following a flurry of activity before Christmas, there has been little sign of a breakthrough in recent days. On Thursday, the White House scotched rumours that a new bill was set to be presented to Congress. Reid and McConnell will spend Saturday hammering out a bill before presenting it to the Senate on Sunday.

Friday's comments came after a day of fierce rhetoric in Washington. Reid, the Senate majority leader, lambasted Boehner and his Republican colleagues, and said the speaker was operating a "dictatorship" and had delayed compromise ahead of a vote on his role on January 3.

"Members of the House of Representatives are out watching movies, and watching their kids play soccer and basketball, and doing all kinds of things," Reid said as the Senate sat for the first time since Christmas. "They should be here."

Boehner has now called back the House of Representatives, whose members will get back to work on Sunday. He warned colleagues to be prepared to work through the New Year. © Guardian News and Media 2012

[Image via AFP]