Lawmakers and key administration officials say they are getting close to a budget deal that will allow them to avoid defaulting on the debt as they barrel toward a break at the end of the month.

Congress has a matter of days before it’s scheduled to leave for the August recess, raising the stakes for negotiators to clinch an agreement quickly.

The optimism comes as Speaker Nancy Pelosi Nancy PelosiPelosi slams Trump executive order on pre-existing conditions: It 'isn't worth the paper it's signed on' On The Money: Anxious Democrats push for vote on COVID-19 aid | Pelosi, Mnuchin ready to restart talks | Weekly jobless claims increase | Senate treads close to shutdown deadline Trump signs largely symbolic pre-existing conditions order amid lawsuit MORE (D-Calif.) and Treasury Secretary Steven Mnuchin Steven Terner MnuchinOn The Money: Anxious Democrats push for vote on COVID-19 aid | Pelosi, Mnuchin ready to restart talks | Weekly jobless claims increase | Senate treads close to shutdown deadline Vulnerable Democrats tell Pelosi COVID-19 compromise 'essential' Pelosi asks panels to draft new COVID-19 relief measure MORE, viewed as the two key players in the talks, have engaged in a series of phone calls over the past week and were expected to speak again Tuesday.

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“They seem to me to be moving closer and closer together,” said Senate Appropriations Committee Chairman Richard Shelby Richard Craig ShelbySenate to push funding bill vote up against shutdown deadline Senate GOP eyes early exit Dems discussing government funding bill into February MORE (R-Ala.).

The progress marks a U-turn from earlier this month, when discussions between Democrats and the White House derailed.

Sen. Shelley Moore Capito Shelley Wellons Moore CapitoCongress must finish work on popular conservation bill before time runs out Second GOP senator to quarantine after exposure to coronavirus GOP senator to quarantine after coronavirus exposure MORE (R-W.Va.), a member of leadership and the Appropriations Committee, said there was “cautious optimism” about a deal, while Senate Minority Leader Charles Schumer Chuck SchumerPelosi slams Trump executive order on pre-existing conditions: It 'isn't worth the paper it's signed on' 3 reasons why Biden is misreading the politics of court packing Cruz blocks amended resolution honoring Ginsburg over language about her dying wish MORE (D-N.Y.) characterized the negotiations as “going quite well right now.”

Helping drive the new burst of momentum is the looming deadline for needing to raise the country’s debt ceiling and avoid a default, which would have catastrophic consequences for the world’s financial markets. The Treasury Department has been using “extraordinary measures” since March to extend the nation’s borrowing limit.

Lawmakers had thought they had until late September or potentially October to raise the debt ceiling. But Mnuchin, in a letter last week to congressional leadership, said the deadline could hit in early September and formally requested that Congress act before they leave for the August recess.

The new debt ceiling deadline also moves up the time frame for getting a deal to raise the defense and nondefense spending caps and avoid deep across-the-board cuts known as sequestration. That pressure has helped push talks forward.

“I know, at least on our side, there’s some optimism we might get there, probably,” said Republican appropriator Rep. Tom Cole Thomas (Tom) Jeffrey ColeBottom line House approves .3 trillion spending package for 2021 Multiple lawmakers self-quarantine after exposure to Gohmert MORE (Okla.). “That’s more because of the debt concern. I think both sides legitimately know we can’t afford to have a default.”

A Democratic aide added that they thought a deal could be reached, “maybe as soon as this week.”

Though sequestration-related cuts wouldn’t kick in until January, both Pelosi and Senate Majority Leader Mitch McConnell Addison (Mitch) Mitchell McConnellTrump 'no longer angry' at Romney because of Supreme Court stance On The Money: Anxious Democrats push for vote on COVID-19 aid | Pelosi, Mnuchin ready to restart talks | Weekly jobless claims increase | Senate treads close to shutdown deadline The Hill's Campaign Report: Trump faces backlash after not committing to peaceful transition of power MORE (R-Ky.) have made it known they view a stand-alone debt ceiling hike as a political non-starter.

“Now is the time to close the deal. ...They haven’t closed it yet, but they haven’t gotten much more time,” Shelby added.

Several key sticking points remain in the negotiations, including hammering out a deal on defense and nondefense spending levels, the administration’s demand for some of the spending increases to be paid for and how to include roughly $22 billion in spending for veterans’ health care.

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The fight over the veterans’ funding had emerged as the most high-profile hurdle. Pelosi, in a recent letter to Mnuchin, publicly laid out her demands, including $9 billion in additional funds in fiscal 2020 and $13 billion in additional funds in fiscal 2021 for the VA Mission Act, which overhauled how the Department of Veterans Affairs (VA) handles health care.

Republicans wanted to pay for the VA Mission Act under the budget caps, but Democrats worried that would force them to make $9 billion of cuts to other programs in 2019 and another $13 billion in 2020. Instead, they want to ensure those payments don’t count toward the caps.

But the sides have shown flexibility on the matter, raising the prospect that they can “split the difference” for a final deal.

“There’s probably a way to get a deal done,” Shelby said when asked about the VA provisions.

Asked if he would support not counting the health care spending toward the budget caps, he added, “If it would make the process work, yes.”

Pelosi told reporters Tuesday that at least some portion of the veteran funding should not count toward the cap, a softening from her Saturday letter that insisted on adjusting caps for the full levels of funding.

At the heart of Pelosi and Mnuchin’s talks are what the overall spending caps will be on defense spending, a top priority for Republicans and the White House, and nondefense spending, viewed as a top priority for Democrats. Sen. David Perdue (R-Ga.) described lawmakers as being roughly $10 billion apart on a top-line figure for defense spending and roughly $30 billion apart on a top-line for nondefense spending.

“The question is how much ransom we’re going to have to pay for the defense number,” said Sen. John Cornyn John CornynQuinnipiac polls show Trump leading Biden in Texas, deadlocked race in Ohio The Hill's Campaign Report: GOP set to ask SCOTUS to limit mail-in voting Liberal super PAC launches ads targeting vulnerable GOP senators over SCOTUS fight MORE (R-Texas), an adviser to McConnell. “We’re going to hit a trillion-dollar deficit this year and we keep spending like drunken sailors.”

House Democrats have marked up spending bills for an overall level of $733 billion in defense spending and $639 billion in nondefense spending, a category that covers everything from health and education to science research and foreign operations. Trump and Republicans want to increase defense spending to $750 billion.

For Democrats, a key principle in the negotiations will be keeping “parity” between the increases to defense and nondefense spending, though they’ve shifted in how they’ve defined equality on funding increases.

“It’s always been a somewhat flexible definition,” a House Democratic aide noted.

Meanwhile, Mnuchin is emphasizing that he wants to offset, or pay for, the spending increases, saying “there’s typically offsets that have been negotiated as part of these deals.”

If Pelosi and Mnuchin aren’t able to quickly put together a caps and debt-limit deal, they would need to come together with a backup plan for raising the debt ceiling.

Mnuchin said a combined budget and debt deal was his first choice, but that in the absence of a timely deal, he expected Congress to cancel part of their August recess in order to deal with the debt ceiling.

“If for whatever reason we can’t agree on all these issues before they leave, I would either expect them to stick around or raise the debt ceiling,” he said.

House Minority Leader Kevin McCarthy Kevin Owen McCarthyMcCarthy says there will be a peaceful transition if Biden wins GOP lawmakers distance themselves from Trump comments on transfer of power McCarthy claims protests in Louisville, other cities are 'planned, orchestrated events' MORE (R-Calif.) floated a short-term agreement as a plan B that would give the White House and Democrats more time to keep talking, while stressing that he was optimistic that they would be able to get a deal before the August recess.

“If we are as close as I believe we are, and we need a day or two longer, that we should stay here and get this done. ... And I would say if we can’t get this done, we should do a 30 day [extension],” he said. “[But] I’d rather get a cap agreement and a debt ceiling agreement before we leave in July, and I think we are very close to making that happen.”

House Majority Leader Steny Hoyer Steny Hamilton HoyerOn The Money: Anxious Democrats push for vote on COVID-19 aid | Pelosi, Mnuchin ready to restart talks | Weekly jobless claims increase | Senate treads close to shutdown deadline Vulnerable Democrats tell Pelosi COVID-19 compromise 'essential' Anxious Democrats amp up pressure for vote on COVID-19 aid MORE (D-Md.) deferred questions about the details of the talks to Pelosi but said Democrats are opposed to a short-term debt ceiling and spending extension.

“There was some talk about short-term; we’re opposed to short-term. We don’t want to go through this again, we don’t want to put the country through this apprehension again,” Hoyer said. “So, we think it needs to be at least a two-year extension. And we want a two-year caps deal, so we’re not continually going down this crisis road.”

Mike Lillis contributed.