Moody's Investors Service warned Thursday that it might review the government's Aaa debt rating for a possible downgrade as early as next month if there is no progress toward a deal in Washington to increase the $14.294 trillion federal borrowing limit and cut deficits.

A short time after that announcement, a meeting at the White House illustrated why reaching a debt agreement has proven so difficult. House Democrats pressed President Barack Obama to insist that tax increases—something Republicans say they won't agree to—be part of any budget agreement that requires deep spending cuts.

The Treasury Department projects it would begin defaulting on its obligations as soon as Aug. 2 without a debt-limit increase. If the government misses any interest payments, that would likely trigger a downgrade of one to three notches, Stephen Hess, senior credit officer in Moody's Sovereign Risk Group, said in an interview.