Barack Obama has called for "immediate action" to avoid the so-called fiscal cliff after urgent talks with Congressional leaders.
He urged politicians to agree a deal, saying: "The hour for immediate action is here. It is now."
He said he remained "optimistic" that an agreement could be reached to avoid millions of families being hit with big tax increases and spending cuts.
Mr Obama described the hour-long meeting with Congressional leaders as "good and constructive".
He referred to "dysfunction in Washington" and said the American public was "not going to have any patience for a politically self-inflicted wound to our economy".
Surprisingly, after weeks of post-election gridlock, Senate leaders said they hope to reach a compromise that could be presented to lawmakers by Sunday - little more than 24 hours before the year-end deadline.
Majority leader Harry Reid and Republican leader Mitch McConnell gave a relatively upbeat assessment after what Mr McConnell called a "good" meeting with Mr Obama.
"I am hopeful and optimistic" of reaching a deal, Mr McConnell said.
Mr Reid promised he would be "going to do everything I can" to make a deal happen, but added: "Whatever we come up with is going to be imperfect."
House Speaker John Boehner appears for the moment to have ceded the struggle to the Senate, saying he would put any agreed bill before his chamber and let the vote proceed.
The US is facing the fiscal cliff because tax rate cuts dating back to George W Bush's presidency expire at the end of the year.
The pending reductions in spending, which will hit everything from social programmes to the military, were put in place last year as an incentive to both parties to find ways to cut the US's soaring deficit.
It followed their inability to reach an agreement in 2011.
If Congress cannot agree a deal to rein in government spending, Mr Obama said Congress should allow a vote on a basic package that would keep tax cuts for middle-class Americans while extending unemployment benefits for the long-term unemployed.
The stock market was down again on Friday as the wrangling continued in Washington.
Experts say if the looming tax increases and spending cuts are not scaled back, the recovering but fragile US economy could slip back into recession.