The United States is heading for deep automatic spending cuts after Democrat and Republican leaders failed to break the deadlock over finding an alternative plan.
Cuts worth 65 billion euros were originally passed to force Congress to agree a budget deal to avoid the so-called “fiscal cliff”.
President Obama, who must sign them into law by the end of Friday, has warned of a “ripple effect” that will hurt the economy.
“At a time when our businesses have finally begun to get some traction, hiring new workers, bringing the jobs back to America, we shouldn’t be making a series of dumb, arbitrary cuts to things that businesses depend on, workers depend on… None of this is necessary. It’s happening because of a choice that the Republicans in Congress have made. They’ve allowed these cuts to happen,” said the president at the White House.
The Republicans, who refuse to accept tax rises, blame the Democrats for the cuts known as the “sequester”.
They want to avoid a separate crisis which could see the government shut down if no funding bill is agreed.
“The House is going to move a continuing resolution next week to fund the government past March 27. And I’m hopeful that we won’t have to deal with the threat of a government shutdown while we’re dealing with the sequester at the same time. The House will act next week and I hope the Senate will follow suit,” said John Boehner, the Republican Speaker of the House of Representatives.
Worst hit by the cuts will be defence. The military stands to lose 35 billion euros, 10 per cent of its budget.
The impact will also be felt in education. Teachers will begin to lose their jobs as money runs out. Other federal workers face being laid off temporarily without pay.
The cuts will take effect gradually – leading some to think Congress still has time to reach a deal to reverse the process.