WASHINGTON — Republican and White House negotiators are moving closer to an agreement to raise the debt limit and cap federal spending for two years, according to people familiar with the matter, as time grows short to avert a catastrophic US default.

The two sides have narrowed differences in talks over recent days, according to the people, though the details agreed to are tentative and a final accord is still not in hand. The two sides have yet to agree on the amount of the cap.

Under the terms of the emerging agreement, defense spending would be permitted to rise 3% next year in line with President Joe Biden’s budget request.

U.S. Treasury yields edged lower across the curve and U.S. equity futures pointed to gains at the open. The dollar slipped against major peers after rising to around the strongest level since March earlier.

Early Friday, Deputy Treasury Secretary Wally Adeyemo warned that payments to Social Security beneficiaries, veterans and others would be delayed if there’s a default. But he said he’s gaining some confidence an agreement will be reached.

“We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Adeyemo said in an interview on CNN. “The president has committed to making sure that we have good-faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans.”

The accord would also include a measure to upgrade the nation’s electric grid to accommodate renewable energy, a key climate goal, while speeding permits for pipelines and other fossil fuel projects that the GOP favors, people familiar with the deal said.

The deal would cut $10 billion from an $80 billion budget increase for the Internal Revenue Service that Biden won as part of his Inflation Reduction Act. Republicans have warned of a wave of agents and audits while Democrats said the increase would pay for itself through less tax cheating.

What is taking shape would be far more limited than the opening offer from Republicans, who called for raising the debt ceiling through next March in exchange for 10 years of spending caps. House conservatives were already balking Thursday at the notion of a small deal, with the House Freedom Caucus sending a letter to McCarthy demanding he hold firm.

An adviser to the House Democratic leadership said the White House had not shared any word about agreements on spending caps or IRS funding.

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