The months-long impasse was resolved after a 90-minute phone call between Mr. Biden and Mr. McCarthy on the evening of May 27 (US time), according to the source. However, details of the agreement have not been disclosed. The source said that negotiators agreed to cap non-defense spending at current levels for the next two years, in exchange for raising the debt ceiling for the same period.

The deal would be a stepping stone to avert a default that could destabilize the US economy, provided the Biden administration clears the final hurdle of a congressional vote. The US Treasury Department has warned that the country could default if Congress fails to pass a deal to raise the debt ceiling, which is set at $31.4 trillion.

Once Biden and McCarthy reach a consensus, House members will have 72 hours to review the proposals before voting. The proposal will then need to pass the Senate. Once both parties pass, the bill will be sent to Biden to sign into law.

The prolonged impasse has weighed on US financial markets. Economists say a default would be far more damaging, potentially plunging the country into recession, shaking the global economy and leading to a spike in unemployment.