As news broke late Wednesday that Moody’s Investors Service was mulling a downgrade of the U.S. government’s triple-A credit rating, Congressional leaders emerged from a “tense” White House meeting that ended abruptly after a heated exchange between President Barack Obama and House Majority Leader Eric Cantor (R-Va.).

Though Democrats and Republicans wrestled to spin the meeting’s terse finish, both sides acknowledged that the potential economic consequences of a credit rating downgrade have added pressure on the leaders to extend the nation’s borrowing capacity before the Aug. 2 default deadline.

This urgency apparently was relayed by Obama, who said near the end of the meeting that the group must set its course by Friday on a deficit reduction package to pair with a vote to raise the debt ceiling. Treasury Secretary Timothy Geithner has said that negotiators would need to come to an agreement by the end of next week in order to give Congress enough time to approve legislation in advance of the August deadline.

“We have to decide by Friday which direction we’re going. … We all need to think about things we can do instead of things we can’t,” Obama said, according to Cantor, who talked to reporters upon returning to the Capitol after the meeting, which lasted nearly two hours.

According to multiple sources from both parties who are familiar with the talks, Cantor insisted throughout the meeting that lawmakers pursue a short-term deal, a move that has been publicly rejected multiple times by Obama. The president has said he will not sign into law any debt limit increase that does not extend through the 2012 elections.

Apparently it was Cantor’s third insistence on a short-term deal, according to a Democratic aide, that set the president off.

After what many characterized as a “constructive” session identifying common ground on discretionary cuts ranging from $1.4 trillion to $1.7 trillion, Obama was telling the leaders that they would meet again Thursday when Cantor reportedly interrupted to make his case yet again.

Cantor explained to reporters that he told Obama he would hold multiple votes on short-term debt limit increases to allow more time to negotiate a final deal. Democratic officials said this is when Obama “lit into” Cantor for 10 minutes while the No. 2 Republican in the House “sat there speechless.”

“He said he had sat here long enough. ‘No other president, Ronald Reagan wouldn’t sit here like this,’ and he’s reached the point that something’s got to give,” Cantor said of Obama’s final exchange. “So he said, ‘You’ve either got to compromise on your dollar-for-dollar insistence or you’ve got to compromise on the big deal.’ Which means raising taxes.

“He said to me: ‘Eric, don’t call my bluff. I’m going to the American people with this.’ I was somewhat taken aback,” the Virginia Republican said.

Cantor said the president then “shoved back, said, ‘I’ll see ya tomorrow,’ and he walked out.”

Democratic sources contend that Obama calmly exited the room, despite initial reports that the exit was more dramatic.

According to one Democratic source, Obama responded to Cantor’s suggested short-term solution by saying, “What’s happening in this room confirms what everybody thinks about Washington, D.C., which is that people are more interested in protecting their base and political posturing than solving problems.”

Indeed, the fight overshadowed what would have been the larger news of both the Moody’s announcement and the common ground in discretionary cuts, which could prove to be a crucial base as Democrats dig in on entitlements and Republicans on taxes. House Minority Leader Nancy Pelosi (D-Calif.) and Speaker John Boehner (R-Ohio) both issued statements Wednesday saying that the Moody’s warning underscores the urgency of the situation.

When the group gathers at 4:15 p.m. Thursday, it plans to discuss cuts to mandatory spending, revenues and a trigger mechanism for how the limits would be enforced going forward.

During the discussion Wednesday about cutting discretionary spending, Boehner said White House officials were relying on “budgetary gimmicks,” according to a GOP aide familiar with the talks. Boehner then told Obama, “We’re not doing that anymore” and asked the president to identify “real cuts,” which Democrats say they are confident they have found.

Senate Minority Leader Mitch McConnell cast a positive light on Wednesday’s meeting, even as Cantor was shaking things up on the other side of the Capitol. “We had another useful discussion, and we’re going to meet again tomorrow,” the Kentucky Republican said.

Both Democrats and Republicans are shoring up their contingency plans in case the group hits an impasse.

Before the meeting, top Democratic leaders from both chambers huddled Wednesday afternoon to try to form a united front in the talks and gave more life to a new emergency plan from Senate Republicans that would avert the looming default.

The Democrats hoped to coalesce around a loose outline to bolster their leverage as Republicans, especially in the House, continue to appear fractured. They also discussed alternatives if the negotiations fail to produce a workable deal, according to sources familiar with the discussion.

The closed-door meeting on the Senate side of the Capitol focused on a contingency plan unveiled Tuesday by McConnell to avoid government default.

Democrats also discussed forming a Members-only commission to review the national debt. The panel would be modeled after the 2005 Base Closure and Realignment Commission and would include an expedited path for floor votes on any agreement the commission might reach. Senate Republicans blocked a similar proposal last year, and aides of both parties scoffed at the idea of yet another Congressional commission that would review the problem but ultimately not legislate.

Senate Majority Leader Harry Reid (D-Nev.) praised McConnell’s framework on the chamber floor Wednesday as a “unique proposal, something that we have to look at very closely,” and he is apparently doing just that. In the afternoon gathering with Democratic leaders, Reid discussed some of the ideas he had to alter the McConnell plan and pair it with hard cuts.

McConnell’s plan only requires the president to recommend cuts when he submits requests to Congress to increase the debt limit. Though Democrats, like Republicans, say they would prefer the White House talks to produce a deal with savings equaling the amount of a debt ceiling increase — approximately $2.4 trillion — they, too, are considering a fallback plan.

Short of a larger agreement, they discussed approving a smaller deal from the White House negotiations, then using some version of McConnell’s plan to further raise the debt ceiling to ensure borrowing capacity through the elections. The Kentucky Republican proposed a complicated mechanism for raising the debt ceiling that would force multiple votes and place the political burden on Congressional Democrats and Obama.

“We could couple it with other things,” Rep. Chris Van Hollen (D-Md.) said about the McConnell plan, which he said “we’re looking at” as he exited the Democrats’ session Wednesday.

It’s still unclear what those “other things” might look like or even whether there’s consensus among Democrats to move forward with a contingency plan that is based on McConnell’s. The Democrats discussed the balance of cuts and whether Reid would include closing corporate tax loopholes in such a package, but they didn’t reach agreement.

The attendees of the meeting in Reid’s leadership suite included Pelosi, House Minority Whip Steny Hoyer (Md.), House Assistant Minority Leader James Clyburn (S.C.), House Democratic Caucus Chairman John Larson (Conn.), Van Hollen, Senate Majority Whip Dick Durbin (Ill.), Senate Democratic Conference Vice Chairman Charles Schumer (N.Y.) and Senate Democratic Conference Secretary Patty Murray (Wash.).

The Democrats’ embrace of McConnell’s proposal, or some iteration of it, is a far cry from House Republicans’ stance, and the opposition isn’t isolated to the GOP Conference’s tea party freshmen. Establishment allies of Boehner conceded in the Speaker’s Lobby on Wednesday that McConnell’s plan was “dead on arrival” in the House, even as Boehner publicly praised his Senate counterpart’s hard work.

Boehner has not specifically stated that he endorses the plan, and Cantor has flat-out rejected it. The latter has given Democrats, especially those in the room Wednesday, a platform to criticize the House GOP even as they try to structure a plan that might be palatable to them.
 
“You have Republicans trashing a proposal put forward by the Republican leader in the Senate,” Van Hollen said. “I think people need to wake up to the fact that these guys message their sins: ‘We’re prepared to take the entire economy, put millions of jobs at risk, unless we get things 100 percent our way.’”

Christina Bellantoni, Jessica Brady and John Stanton contributed to this report.