US Treasury Secretary Timothy Geithner warned today that failure to raise the debt ceiling by August 2nd could mean "catastrophic damage" to the economy, and an agreement must be reached.

"There has to be a deal, failure is not an option. The question is how good a deal it's going to be," Mr Geithner said on CBS's Face the Nation.

The Treasury has said the debt ceiling must be raised by August 2nd and credit rating agencies have threatened to downgrade US debt if there is a risk of default.

Republicans and Democrats are at odds over how to go about reducing the budget deficit, which lawmakers have tied to any agreement on raising the $14.3 trillion cap on US borrowing authority.

"We have no option except to come together. And the question is, again, not whether we're going to have an agreement. We're going to have an agreement. The question is: are we going to have an agreement that's going to be good for the economy?" Mr Geithner said.

"This week, and certainly by the end of next week, we have to have agreement on the outlines of a package," he said. "It has to be clear that the leadership has found a way to solve this and they have a path to get votes for something."

President Barack Obama and House Speaker John Boehner are to meet with other congressional leaders at the White House later today. The meeting comes one day after Mr Boehner said he would only pursue a deficit-reduction package about half the size of the far-reaching $4 trillion deal favoured by Mr Obama.

"We're going to try to get the biggest deal possible, a deal that's best for the economy, not just in the short term," Mr Geithner said on NBC's Meet the Press. He added that "small deals are very tough, too" because they require difficult reforms, savings, and cuts.

Mr Geithner warned that if credit rating agencies downgrade US debt for the first time in history, "you're going to see catastrophic damage across the American economy and across the global economy".