With "fiscal cliff" talks going to the wire, President Barack Obama said Friday he was optimistic that an agreement can be reached in time to avert the automatic tax increases and spending cuts that could throw the economy back into recession.
If an agreement is not reached in time, he said he would urge Senate leaders to bring to the floor a basic package for an up or down vote on extending a tax break for the middle class and extending unemployment insurance for the 2 million Americans looking for a job. "I believe such a proposal could pass both houses with majorities as long as those leaders allow it to actually come to a vote," he said.
Obama spoke at the White House after a late afternoon meeting with bipartisan congressional leaders. He called the talks "good and constructive."
"I'm optimistic we may still be able to reach an agreement that can pass both houses in time," Obama told reporters.
After the meeting, Senate Republican Leader Mitch McConnell also called the talks "good." "I'm hopeful and optimistic," McConnell said, adding that he hoped Senate leaders can make recommendations by Sunday, when the House reconvenes.
Senate Majority Leader Harry Reid said the negotiations were "very constructive," and that the next 24 hours were going to be crucial. "We hope that it will bear fruit, but that is what we hoped a lot," he said.
House Speaker John Boehner's office said the group agreed that the next step should be the Senate taking bipartisan action. And Don Stewart, a spokesman for McConnell, said: "Members of the Senate will continue to work toward producing a bipartisan package in a timely manner to protect American taxpayers and jobs from a massive tax hike in January."
In addition to Reid, McConnell and Boehner, House Democratic Leader Nancy Pelosi participated in the Oval Office meeting, as did Vice President Joe Biden and Treasury Secretary Timothy Geithner.
A source familiar with the meeting told CNBC that Obama did not plan to make a new offer; just lay out what he thinks can pass the House and Senate. That includes keeping the tax cut for those making up to $250,000 and an extension of unemployment insurance.
Obama is slated to appear on NBC's "Meet the Press" on Sunday.
Stocks skidded on the day's developments. Before Obama's optimistic statement, the Dow and S&P 500 had their worst one-day drop since Nov. 14, and the two indices and the Nasdaq closed at month lows. (Read More: Stocks Drop 2% for Week Amid 'Cliff' Angst)
The meeting -- the first such gathering since Nov. 16 -- stood as a make-or-break moment for negotiations to avoid across-the-board first of the year tax increases and deep spending cuts.
Without a deal, Obama and the leaders would leave the issue to the next Congress to address when its term begins next Thursday.
Such a delay could unnerve the stock market. Economists say that if the tax increases are allowed to hit most Americans and if the spending cuts aren't scaled back, the recovering but fragile economy could sustain a traumatizing shock and be thrown back into recession.
But a sentiment is taking hold that, despite a black eye to its image, Congress could weather the fiscal cliff without significant economic consequences if it acts decisively next month. (Read More: Over the 'Cliff': What Kind of Landing?)
"Regardless of whether the government resolves the issues now, any deal can easily be retroactive. We're not as concerned with Jan. 1 as the market seems to be," said Richard Weiss, a Mountain View, Calif.-based senior money manager at American Century Investments.
And Jared Bernstein, Biden's former economic adviser, wrote in a blog post Thursday that "going over is likely because at this point both sides probably see a better deal on the other side of the cliff."
By letting current tax cuts expire and rise, Bernstein and others say, Republicans would be voting to lower taxes next month, even if not for all taxpayers. Democrats -- and Obama -- would be in a stronger position to demand that taxpayers above the $250,000 threshold pay higher taxes, instead of the $400,000 threshold that Obama proposed in his latest offer to Boehner. (Read More: Stop-Gap Fix Most Likely Outcome of US Fiscal Talks)
"At this point, unless [Boehner's] willing to say, 'I'll allow a vote to get over the transom with majority Democrats,' then it looks to me like we're going over the cliff," Bernstein told CNBC's "Squawk Box" on Friday. "And I don't think he's willing to do that before the end of the year. I do think … that a bungee jump scenario is actually kind of plausible. And I think that's what they may be talking about at the White House today. How can we quickly reverse the damage?"
Under such a scenario, the debate over spending cuts, including changes to politically sensitive entitlement programs such as Medicare, would have to start anew.
The No. 2 Senate GOP leader, Jon Kyl of Arizona, said it is "pretty unlikely" that Senate Republicans would agree to legislation averting the fiscal cliff if it wouldn't pass muster in the House.
"If you know the House isn't going to do something, why go through the charade?" he told reporters. "That becomes political gamesmanship."
Obama called for the meeting as top lawmakers alternately cast blame on each other while portraying themselves as open to a reasonable last-minute bargain.
Reid all but conceded that any effort at this late date was a long shot. "I don't know timewise how it can happen now," he said Thursday. (Read More: As Clock Ticks, Can Washington Reach a Fiscal Deal?)
For Obama, the 11th-hour scramble represented a test of how he would balance the strength derived from his re-election with his avowed commitment to compromise. Despite early talk of a grand bargain between Obama and Boehner that would reduce deficits by more than $2 trillion, the expectations were now far less ambitious. (Read More: Five Questions to Ask Your Adviser About the 'Fiscal Cliff')
Although there were no guarantees of a deal, Republicans and Democrats said privately that any agreement would likely include an extension of middle-class tax cuts with increased rates at upper incomes, an Obama priority that was central to his re-election campaign.
The deal would also likely put off the scheduled spending cuts. Such a year-end bill could also include an extension of expiring unemployment benefits, a reprieve for doctors who face a cut in Medicare payments and possibly a short-term measure to prevent dairy prices from soaring, officials said. If lawmakers fail to pass farm legislation by year's end, milk prices will spike at least $2 per gallon.To get there, Obama and Reid would have to propose a package that McConnell would agree not to block with procedural steps that require 60 votes to overcome.
Democratic Sen. Chuck Schumer of New York said he still thinks a deal could be struck, telling NBC's "Today" show Friday that he believes the "odds are better than people think."
Schumer said he based his optimism on indications that McConnell has gotten "actively engaged" in the talks.
Appearing on the same show, Republican Sen. John Thune noted the White House, saying "it's encouraging that people are talking."
But Sen. Bob Corker, R-Tenn., predicted that "the worst-case scenario" could emerge from Friday's talks.
"We will kick the can down the road," he said on "CBS This Morning."
"We'll do some small deal and we'll create another fiscal cliff to deal with the fiscal cliff," he said. Corker complained that there has been "a total lack of courage, lack of leadership," in Washington.
Speaking on the Senate floor Thursday, McConnell cautioned: "Republicans aren't about to write a blank check for anything the Democrats put forward just because we find ourselves at the edge of the cliff."
Nevertheless, he said he told Obama in a phone call late Wednesday that "we're all happy to look at whatever he proposes."If a deal were to pass the Senate, Boehner would have to agree to take it to the floor in the Republican-controlled House. (Read More: Boehner Abruptly Scraps 'Plan B' Vote)
Boehner discussed the fiscal cliff with Republican members in a conference call Thursday and advised them that the House would convene Sunday evening. Rep. Tom Cole, R-Okla., an ally of the speaker, said Boehner told the lawmakers that "he didn't really intend to put on the floor something that would pass with all the Democratic votes and few of the Republican votes."
But Cole did not rule out Republican support for some increase in tax rates, noting that Boehner had amassed about 200 Republican votes for a plan last week to raise rates on Americans earning $1 million or more. Boehner ultimately did not put the plan to a House floor vote in the face of opposition from Republican conservatives and a unified Democratic caucus.
"The ultimate question is whether the Republican leaders in the House and Senate are going to push us over the cliff by blocking plans to extend tax cuts for the middle class," White House communications director Dan Pfeiffer said. "Ironically, in order to protect tax breaks for millionaires, they will be responsible for the largest tax increase in history."
Despite the urgency to act, the rhetoric Thursday was quarrelsome and personal.
The House of Representatives is "being operated with a dictatorship of the speaker," Reid said on the Senate floor. He attributed Boehner's reluctance to put a version of Senate bill that raised tax rates on incomes above $250,000 for couples to fears he could lose his re-election as speaker next week.
"Harry Reid should talk less and legislate more if he wants to avert the fiscal cliff," countered Brendan Buck, a spokesman for Boehner.