Obama pushes for last-ditch fiscal cliff breakthrough in White House talks

Washington geared up for a final effort to avert the fiscal cliff budget crisis on Friday as Barack Obama held crisis talks with congressional leaders and legislators cut short holiday plans to return to Capitol Hill.

After a day of bitter recriminations on Thursday, there were small signs of hope going into the fresh 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."

At 3pm, 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 hopes of thrashing out a deal. Treasury secretary Tim Geithner was also in attendance.

The meeting broke up an hour and 15 minutes later, with no immediate statement from either side.

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 no 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. Without a compromise, 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.

With such little time left, most analysts now expect a patch solution. Obama was reportedly planning a compromise that would include restricting tax hikes to those earning more than $400,000, extending unemployment payments, and stopping a cut in Medicare reimbursements to doctors while a permanent solution is found.

But a report from Reuters quoted a White House source denying the new deal line.

Schumer and Thune'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.