The troubled housing market would be directly affected, as mortgage rate increases are highly correlated to the government's cost to borrow money.
"The problem is we will need political discipline to prevent increasing costs of borrowing in the coming years," said Susan Wachter, professor at The Wharton School. "And the housing market will be fragile and potentially endangered by an interest rate shock for several years to come. We will need confidence, investor confidence, to help recovery in the housing market and the overall economy to get back on track."
The next several weeks will be critical to the debate over the debt limit and budget deal. It is possible the markets will start to react depending on Washington's ability to make real headway on some of the most difficult fiscal problems it has ever faced.
"Everybody in Washington still seems content to feed the American public's desire for instant gratification," said Diane Swonk, chief economist at Mesirow Financial. "Entitlements are not insurmountable but will need to be cut and taxes will have to be raised if we hope to keep the bulk of the Americans who need [Social Security, Medicare and Medicaid] from rioting."