Billions of pounds' worth of tax hikes and automatic cuts to government spending will begin to kick in on Tuesday following a year-end deadline if rival politicians cannot agree on a deal.
Analysts have warned this could tip the US back into recession and that it represents the single biggest short-term threat to global economic recovery.
Two Senate veterans have been handed the task of trying to forge a deal that has eluded the White House and Congress for months – with a deadline of today.
Yesterday Obama used his weekly radio address to urge them to reach an agreement.
"We're now at the point where in just a couple of days, the law says that every American's tax rates are going up," he said. "Every American's paycheck will get a lot smaller, and that would be the wrong thing to do for our economy.
"It would hurt middle-class families and it would hurt the businesses that depend on your spending."
Obama went on to say that Congress could prevent it happening, "if they act now".
"Leaders in Congress are working on a way to prevent this tax hike on the middle class, and I believe we may be able to reach an agreement that can pass both houses in time."
The core disagreement between Republicans and Democrats revolves around the low tax rates first put in place under President George W Bush that expire at the end of this year. Republicans want to see them extended for everyone, while Democrats would extend them for everyone except the wealthiest taxpayers.
On Friday, a meeting of congressional leaders at the White House did not appear to result in progress.
But it was agreed to task Harry Reid, the Democratic Senate majority leader, and Mitch McConnell, who heads the chamber's Republican minority, with reaching a budget agreement by today.
Any agreement between them would be backed by the Senate and then approved in the Republican-controlled House of Representatives before the end of the year.
However, the House could well be the graveyard of any deal, as it contains a core of fiscal conservatives who strongly oppose Obama's efforts to raise taxes for the wealthiest as part of a plan to reduce America's budget deficit.
If the situation cannot be worked out, Obama said he wanted both chambers in Congress to vote on a back-up plan that would increase taxes only for households with more than $250,000 of annual income.
The plan would also extend unemployment insurance for about two million Americans and set up a framework for a larger deficit reduction deal next year.
In his radio address, Obama said: "I believe such a proposal could pass both houses with bipartisan majorities – as long as these leaders allow it to come to a vote.
If they still want to vote no and let this tax hike hit the middle class, that's their prerogative – but they should let everyone vote.
"That's the way this is supposed to work.
"You meet your deadlines and your responsibilities every day. The folks you sent here to serve should do the same.
"We cannot let Washington politics get in the way of America's progress. We've got to do what it takes to protect the middle class, grow this economy and move our country forward."
The talks between the two Senate leaders and their aides were expected to focus mainly on the threshold for raising income taxes on households with upper-level earnings.
Analysts say both sides could agree on raising taxes for households earning more than $400,000 or $500,000 a year.
Following Friday's meeting, Reid warned the talks would be tough.
"It's not easy, we are dealing with big numbers, and some of that stuff we do is somewhat complicated," he said.
A raft of gloomy predictions have been made about what will happen if the US does go over the "fiscal cliff", including unemployment jumping by more than 9% in 2013 and the average annual tax bill for each American rising by $3500.
About two million people could be cut off from long-term unemployment benefit immediately if the scheme is not renewed.
Pessimism about the fiscal cliff helped push US stocks down on Friday for a fifth straight day, while retailers are blaming worries about it for lacklustre Christmas season.
The stalemate has prompted Starbucks to expand a campaign urging lawmakers to reach a deal, which encourages workers to write the words "come together" on customers' cups.