S&P Outlook on Federal Debt May Prompt Government Action

Stephen Chernin/Getty Images(NEW YORK) -- Many Americans have reduced their household debt and re-set their spending plans, and a new warning from a big ratings firm may prompt the government to do the same.

Standard & Poor’s has filed a warning shot, downgrading the long-term outlook for U.S. government debt from stable to negative.  Economist Hugh Johnson says this shift may lead to action on the deficit.

"What that's going to do is put a lot of pressure on policymakers in Washington, both Democrats and Republicans," Johnson says.

As a result, government services may be cut and taxes could be raised.

"We may be talking about a little more austerity -- less spending, a little bit higher taxes coming out of Washington and a little bit sooner than expected," he says.

Johnson adds that cutting the deficit too quickly could be risky for the economy.

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