"I do believe that we will avoid sequestration," said Mark Warner, a Democratic senator from Virginia.

He and Republican Senator Saxby Chambliss are leading the "Gang of Eight" talks aimed at avoiding the spending cuts embedded in the so-called fiscal cliff on Jan. 1. The cliff, which lawmakers have little time to avoid, includes big spending cuts and tax increases that in combination are expected to push the United States into recession.

The pair were speaking at a financial markets conference in New York a day after President Barack Obama caught Capitol Hill by surprise when he said that automatic spending cuts "will not happen," in his third and final debate with Republican challenger Mitt Romney.

"This was certainly news to us," Chambliss said of Obama's comment. "I can tell you it sent waves around Washington."

The chances of a comprehensive legislative solution to the cliff problem before Jan. 1 are considered slight and members of Congress have been looking for some temporary fix to buy time once a new Congress and a new or re-elected president are sworn in in January.

The Gang of Eight senators want to put Congress in a position to deal with sequestration in the 30 days or so that it will have between the Nov. 6 election and the end of the year, Chambliss told the conference hosted by the Securities Industry and Financial Markets Association.

"I wish we could walk in here and tell you that we have a silver bullet," he said. "But it is going to be a very tough political slugfest in that period of time."

The spending cuts and tax hikes could take an estimated $600 billion out of the U.S. economy and push it into recession next year, according to the non-partisan Congressional Budget Office.

The spending cuts were mandated by Congress as part of a deal to raise the debt ceiling for federal borrowing last year. At the time, the assumption was that they would be replaced in a more deliberative way by a super-committee, which failed in its efforts.

Warner and Chambliss have been working on a bipartisan solution for more than two years. In recent months, the uncertainty has spooked financial markets.

"This is a challenge ... that is going to require both sides," Warner said. "It's going to require extra revenues, it's going to require entitlement (cuts)."

Simply putting off the hard decisions on spending would be a mistake, he added. "I think a complete punt would be awful."