Debt limit talks in Washington have hit a fresh impasse with negotiators far apart on key issues, especially the spending cuts demanded by Republicans, as time runs short to avert a historic US default.

Negotiators were tentatively planning to return to the table amid the stalemate. House Speaker Kevin McCarthy said he had spoken to White House negotiators early Wednesday and that discussions would continue.

“We’ll get together this morning,” he said.

House Republicans have escalated their accusations that Biden lacked urgency in negotiations, while a Democratic aide called McCarthy unwilling to compromise across a wide spectrum of disputed points, threatening the legislative prospects of a deal.

After weeks of showing little sign of concern, equities are now becoming more volatile. Futures on the S&P 500 were down 0.4% as of 8:44 a.m. in New York, after the index slid 1.1% Tuesday. Treasuries dipped.

If a default did occur, economists project it could send the US into a recession, with widespread job losses and higher consumer borrowing costs spilling into the coming election year.

“The current standoff over the US debt ceiling has the potential to wreak more havoc on the economy than any previous go-around,” wrote Bloomberg Economics chief economist Anna Wong.

Read More: Band of Democrats Readies McCarthy Lifeline for Debt Compromise

Treasury Secretary Janet Yellen on Monday called it “highly likely” that her department would run out of cash in early June without an extension of the debt ceiling, and repeated her warning that the moment could come as soon as June 1.

Republican Representative Garret Graves of Louisiana, one of McCarthy’s chief negotiators, suggested just hours after a two-hour meeting in the Capitol with his White House counterparts that the two sides were at a standoff.

“Bottom line is that we’re going to have to see some movement or some fundamental change in what they’re doing,” Graves said of the White House negotiating team. “Right now, we don’t have additional meetings set up.”

McCarthy has told Biden that he did not intend to retreat from public refusals to accept additional taxes as part of an agreement, and has held that defense spending should increase while non-defense discretionary spending should be cut, according to a Democratic aide.

He has also declined White House requests to scale back his proposed work requirements for food stamp programs, the person said.

The speaker isn’t alone in drawing red lines. The White House has said Biden would flatly reject a proposal that imposes work requirements on federal health care programs, or any effort to repeal the president’s signature Inflation Reduction Act legislation.

It is not unusual for Congress to strike budget deals at the last minute when the pressure becomes great enough to force negotiators to make painful choices.

Read More: Debt-Limit Doomsday Clock: What June Looks Like for US Treasury

McCarthy likely has little room to give, as he looks to hold together a fragile GOP coalition. Republicans want to slash domestic spending over as many years as possible, while Democrats have offered slimmer cuts over a couple of years.

Democrats argue that while Biden has offered concessions – including a two-year spending cap and rescinding significant unspent coronavirus funds – McCarthy has refused sweeteners that could win over Democratic lawmakers.

Hakeem Jeffries, the House Democratic leader, told reporters that a freeze at 2023 spending levels would be a “reasonable” compromise. Jeffries, who has opposed work requirements, said any accord that requires Democratic votes must reflect Democratic priorities.

Yet Republicans believe McCarthy has leverage in the talks, assisted by Biden’s initial refusal to negotiate over the debt ceiling. Polls show that Americans generally favor pairing spending cuts with raising the debt ceiling, though that approval drops when the programs that face cuts are detailed.

At the same time, group of moderate House Democrats is preparing to help rescue McCarthy should he forge a bipartisan deal to avert a US default that touches off sparks a revolt by ultra-conservatives.

The offer is purely hypothetical at the moment, but at least 10 Democrats stand ready to cross party lines to help him retain his post as speaker if Republican hard-liners try to oust him in the aftermath of a debt-limit deal, according Representative Dean Phillips of Minnesota, who is involved in the effort.

--With assistance from Billy House.

(Updates with McCarthy from second paragraph)

Author: Justin Sink, Ari Natter and Erik Wasson