(UPI) -- U.S. President Barack Obama says if Congress can't enact a large deal to avoid sequestration it should pass a smaller package to allow for more negotiations.

Following last month's agreement on a temporary extension of the federal debt limit, Congress is confronted with the prospect of $1.2 trillion in automatic spending cuts -- called sequestration -- scheduled to begin March 1.

The cuts would slice equally across defense and domestic spending and take substantial government funding out of the economy.

"If Congress can't act immediately by the time the sequestration is scheduled to go into effect, then I believe they should at least pass a smaller package" to give Congress time to find a solution, Obama told reporters at the White House Tuesday.

The president said the country is headed in the right direction economically, and said it will "stay that way as long as there are no more self-inflicted wounds coming out of Washington."

Obama said the government can achieve $4 trillion in deficit reduction economists say is needed but for that to happen, "modest reforms in our [social] insurance programs have to go hand in hand with" closing tax "loopholes and deductions."

He said the House and Senate "are working toward what I hope is a balanced approach" of cuts and revenue.