Politicians May Want to Heed Fed's Warning

NEW YORK (TheStreet) -- President Barack Obama and House Speaker John Boehner both gabbed this week about budget showdowns, but the only words that mattered Wednesday were uttered by the Federal Reserve.

The Fed warned of fiscal tightening in 2013 if Congress doesn't reach agreement on a plan for the federal budget.

House Speaker John Boehner

"If agreement is not reached on a plan for the federal budget, a sharp fiscal tightening could occur at the start of 2013," read the minutes of the latest meeting of the Federal Open Market Committee.

"They're trying to remind the politicians to keep their eye on the ball," says Frank Fantozzi, president of Planned Financial Services. "We know it's an election year and we all know a lot of focus and resources are going that way, but you still have a country to run."

Boehner insisted Tuesday that budget reforms must be greater than a debt limit increase, echoing a sentiment that hasn't changed much since last year. Obama didn't waver Wednesday from his familiar rhetoric either as he told top leaders of Congress that they must use a bipartisan approach in tackling the budget.

Though the debt limit appears to be the more pressing focus among Capitol Hill politicians and the president, it could merely preface what will actually occur in 2013 when a possibly divided Congress must meet an agreement on the debt ceiling and a proper budget.

The Fed said there was some feeling on the committee that another game of chicken like what occurred happened in 2011 could put the economy's recovery under stress.

"Several participants indicated that uncertainty about the trajectory of future fiscal policy could lead businesses to defer hiring and investment," the FOMC statement read.

Three areas of business that could be in for the most severe setbacks are construction, health care and defense and construction, says Fantozzi of Planned Financial Services.