A major credit rating agency is warning Washington that delays in resolving a dispute over government borrowing will prompt a review of the nation’s credit rating.
The Fitch rating agency said it expects Congress will eventually raise the debt ceiling, making the risk of a default on U.S. debts extremely low.
Back in August 2011, political squabbling in Congress over raising the legal borrowing limit prompted the rival S&P agency to downgrade the U.S. credit rating one notch from its previous top level.
Fitch is making it clear it could consider a downgrade if congressional action is stalled by renewed bickering. Fitch called the debt ceiling an ineffective and potentially dangerous mechanism for controlling government spending.
Investment advisor Frank Reilly of Reilly Financial Advisors said the political fight is likely to go down to the last minute. He said the political uncertainties means businesses are reluctant to make investments and hire people.
However, once the political squabbling is over, Reilly thinks the U.S. economy is poised to grow more quickly, an outlook that is in line with economic reports published Tuesday.
The Commerce Department said U.S. retail sales rose half-a-percent in December, which is more than first estimated. Economists watch retail sales closely because consumer demand drives most U.S. economic activity.
A survey by the Gallup organization showed Americans grew a bit less pessimistic about the economy last week, but remain concerned about financial issues.
A separate measure of inflation at the wholesale level shows prices declining slightly for the third month in a row. Relatively tame inflation means the U.S. central bank can continue its efforts to stimulate the economy by keeping interest rates at ultra-low levels. If inflation were to rise sharply, the Federal Reserve would likely raise interest rates to cool the economy.