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The Republican and Democratic leaders of a 12-member congressional "super committee" are set to declare defeat in a joint statement to be released after three months of talks failed to bridge deep divides over taxes and spending.
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After a year of bruising budget battles, it's another sign that lawmakers are too entrenched to compromise on the tax increases and benefit cuts that budget experts say are needed to set the country's finances on a stable path.
The panel's failure will cement notions of a dysfunctional Washington among voters and investors already disenchanted with the brinkmanship that brought the country to the edge of a first-ever debt default in August.
Lawmakers likely won't return to the problem until 2013 at the earliest as they shift their attention to the 2012 presidential and congressional elections.
Budget skirmishes will continue over the coming months.
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Democrats will try to extend short-term economic stimulus measures, such as enhanced unemployment benefits and a payroll tax cut, that they'd hoped to roll in to any super committee deal. Analysts say the economy could slide back toward recession if they expire as planned at the end of the year.
Republicans will scramble to shield the military from $600 billion in automatic spending cuts that are triggered, beginning in 2013, in the absence of a deal.
European stocks dropped to a six-week low early on Monday after Asian stocks fell and the U.S. dollar slipped as news of the collapse weighed on markets. Market expectations for a deal were low, and investors have viewed the U.S. as a relative safe haven from the debt crisis in the Eurozone,
But failure could remind investors of the risks posed by gridlock in Washington.
"As is the case with policymakers in Europe, U.S. politicians need to be doing more than investors expect, not less," said Michael Gapen, senior U.S. economist with Barclays Capital.
President Barack Obama kept his distance from the talks, choosing instead to emphasize a job creation package that was blocked by Republicans in Congress. Aides believe Obama will be able to use the super committee's failure to paint Republicans as obstructionist as he seeks re-election.
Congressional leaders set up the super committee during a bitter budget fight last summer that hammered consumer confidence and prompted a first-ever downgrade of the U.S.' AAA credit rating by Standard & Poor's.
AIMING FOR THE BIG DEAL
Blessed with extraordinary powers, the committee was supposed to forge the sort of deficit-reducing deal that had eluded Obama and House Speaker John Boehner, the top Republican in Congress, over the summer.
