Fitch places the US on rating watch negative on the debt ceiling fight

CNN
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A deadlocked Congress that has taken America to the brink of default could jeopardize America’s perfect credit rating, Fitch said in a stern warning on Wednesday.

The credit rating agency placed top-rated US credit on rating watch negative, reflecting the uncertainty surrounding the debt ceiling debate and the possibility of a first default.

The move comes as Republican and Democratic lawmakers negotiate to raise the U.S. debt ceiling, though no deal has yet been reached. With Treasury Secretary Janet Yellen saying the US may not be able to pay its bills as soon as June 1, the country faces the possibility of an unprecedented default, which could have disastrous consequences both in the US and around the world.

Fitch, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative”, signaling that it may downgrade the US debt if lawmakers do not agree on a bill that increases the US Treasury’s debt limit. .

“Rating Watch Negative reflects heightened political partisanship that prevents reaching a resolution to raise or suspend the debt limit despite the rapidly approaching x-date (when the US Treasury depletes its cash position and capacity for extraordinary measures without incurring new debt) ,” the company said in a statement.

However, Fitch added that they still believed lawmakers would pass a resolution before the “X date.”

The White House on Wednesday pointed to Fitch Ratings’ move as a reason for the urgency of raising the debt ceiling.

“This is further evidence that default is not an option, and all responsible lawmakers understand that. It reinforces the need for Congress to quickly pass a reasonable, bipartisan deal to prevent default,” a White House spokesman said in a statement.

The Treasury Department also weighed in on Wednesday night, saying a potential downgrade shows why Congress must immediately address the debt ceiling.

“As Secretary Yellen has warned for months, brinkmanship over the debt limit is doing serious harm to businesses and American families, increasing short-term borrowing costs for taxpayers and threatening the credit rating of the United States,” Treasury spokeswoman Lily Adams said in a press release. statement.

“Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt ceiling and avoid a manufactured crisis for our economy,” Adams said

In 2011, S&P issued its first ever credit downgrade to the US, reducing its rating to AA+. More than a decade later, the agency still has not restored its ranking.

A US default could send shock waves across the global economy and potentially cause a recession, according to experts. That could mean higher borrowing costs for the government and Americans themselves and a massive drag on economic growth.

Dow futures fell more than 85 points Wednesday night amid Fitch’s warning, but the S&P 500 and Nasdaq traded in positive territory.