As predicted, the U.S. stock market is feeling the effect of gridlock in Washington.
The fight over raising the nation’s debt ceiling, combined with dismal economic news, has become a drag on stock prices.
The Dow average was sharply lower in trading early Friday morning, just four days before a potential federal government debt default. Congress is trying to pass legislation by August 2 authorizing the federal government to raise its $14.3 trillion debt ceiling.
Without the debt limit increase, the U.S. government will not be able to pay all of its bills beginning August 3.
Both political parties have offered plans that reduce spending over several years. However, Republicans want only a six-month temporary extension of the debt ceiling while Democrats and the president are pushing for a longer-term solution.
Both parties are also at odds about how much should be cut and whether tax increases should factor into the revenue mix.
The financial uncertainty is troubling the markets. The price of gold, long considered a “safe” investment, has risen to nearly $1,630 per ounce. Demand for 10-year Treasury bonds has also increased, which has driven bond yield prices down.
Shortly after 1:00 p.m. EST today, the Dow was down 0.59 percent to 12,167.61. Though lower than its previous close, that figure was higher than earlier in the day. The Dow received a boost shortly after President Barack Obama made remarks from the White House about the status of the still-stalled debt ceiling debate in Congress.
U.S. economic news released today didn’t help matters. The Commerce Department revealed that economic growth during the first six months of the year was at its slowest pace since the recession ended.
Gross Domestic Product had a 1.3-percent annual rate of increase, which was far below expectations. Observers note that consumer spending fell during this time. State and local governments struggled with layoffs and balanced budget requirements. Business investments and exports, however, were up, which offset the other factors.
Financial experts in the United States and abroad are keenly watching the impacts of the debt debate on stock prices, the strength of the dollar, and in other world markets. The results of a debt default, a potential first in U.S. history, could have far-reaching consequences on the fragile economies here and around the globe.