By Andrew Duehren and Kate Davidson 

WASHINGTON -- House Speaker Nancy Pelosi set a Friday deadline for Congress and the Trump administration to reach an agreement on raising the U.S. government's borrowing limit and setting new overall spending levels.

Mrs. Pelosi, who has been regularly speaking with Treasury Secretary Steven Mnuchin, said she wanted to vote on any potential agreement next Thursday, a day before the House goes on recess. To achieve that, any agreement would need to be completed by this Friday to give the chamber enough time to move the deal through the legislative process.

"We would like to have something on the floor next Thursday so that we can send it in a timely fashion to the Senate so they can go through their, shall we say, particularly senatorial process to get it done in time," Mrs. Pelosi said.

A senior administration official poured cold water on Mrs. Pelosi's timeline, saying "we have a way to go."

While the House goes on recess July 26, the Senate doesn't take its break until Aug. 2.

Mr. Mnuchin spoke over the phone with Mrs. Pelosi and Senate Minority Leader Chuck Schumer (D., N.Y.) for 30 minutes Wednesday morning, according to an aide for Mr. Schumer. The Treasury secretary is in France Wednesday and Thursday for the G7 finance ministers' meeting.

Though Mr. Mnuchin signaled Monday the two sides were "very close" to a deal, they have yet to agree on whether the cost of a new budget agreement will be offset and whether it will include additional funds for an overhaul of veterans' health care.

Congressional leaders and administration officials began talks earlier this year on a new agreement to set overall spending levels after the current budget deal expires Oct. 1. Without a new agreement, automatic spending cuts would kick in, lowering discretionary spending by 10% next year from 2019 levels.

Those talks took on new urgency last week, when Mr. Mnuchin warned the government could exhaust its ability to keep paying its bills in early September, before Congress returns from recess.

Without the ability to borrow, the government could begin to miss payments on its obligations, such as Social Security and veterans benefits or interest on the debt, triggering a potential default.

Members of both parties have sought to pair the debt limit vote with a broader spending agreement -- a move that gives Democrats an impetus to push for domestic spending increases and lets Republicans avoid a difficult, standalone vote on raising the borrowing limit.

Mrs. Pelosi is seeking equal increases in military and nonmilitary funding next year, a concept known as parity, plus an additional $22 billion over two years for an overhaul of the health-care program at the Department of Veterans Affairs. The administration has sought to include any additional VA funding as part of the underlying domestic spending increases.

"We don't want the veterans' resources to be competing with each other or competing with other very valuable domestic priorities," Mrs. Pelosi said Wednesday.

Meanwhile, a group of conservative House Republicans said Tuesday any new budget deal should be fully offset and include provisions to rein in long-term spending, citing soaring budget deficits.

To address those concerns, the administration is exploring the idea of extending the spending caps enacted in 2011 beyond 2021, when they are set to expire, according to two administration officials. That could bolster support for a broader agreement among the House GOP, which one of the officials said is key to winning President Trump's ultimate support for any deal.

"The president is not going to sign a bill that's an all-Democrat House bill," the official said.

Write to Andrew Duehren at andrew.duehren@wsj.com and Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

July 17, 2019 17:57 ET (21:57 GMT)