Fitch warns it could still cut US debt ratings even after the deal

President Joe Biden is expected to sign the law later today.

Government securities are the lifeblood of the financial markets and a benchmark for how everything from municipal debt to credit card interest is priced. A downgrade, which would mark only the second time a ratings service has knocked U.S. bonds from top-tier status, could raise borrowing costs for consumers, businesses and governments — tightening credit conditions at a time when the economy is already at risk of recession.

That would provide tough political headwinds for Biden, House Speaker Kevin McCarthy and other 2024 incumbents who waited until the U.S. was days away from default before agreeing to a deal. A similar dynamic influenced S&P̵[ads1]7;s decision to downgrade the U.S. credit rating in 2011, even after President Barack Obama and Republican leaders averted a debt-limit disaster.

So far, the economy has shown surprising resilience despite stubbornly high inflation and a rapid series of rate hikes driven by Federal Reserve Chairman Jerome Powell.

But US policymakers have risked damaging the economy’s otherwise strong fundamentals thanks to “a steady deterioration in governance over the past 15 years,” according to Fitch’s statement.

“Increased political polarization and partisanship, as evidenced by the contested 2020 election, repeated limits on the debt ceiling and the inability to deal with fiscal challenges from increasing mandatory spending have led to increasing fiscal deficits and debt burdens,” the rating service said.

Source link

Back to top button