Share

Fitch puts US rating under negative scrutiny

Said it "expects" a correct decision by Washington in due course
Fitch puts US rating under negative scrutiny
US money

Fitch has put the US Premium Credit Rating (AAA) under surveillance for a possible downgrade, due to the risk of Washington defaulting on its debt if the US public debt ceiling is not raised.

The move would increase the stakes as negotiations to raise the US debt ceiling approach key decision moments.

The agency said in a statement that its decision “reflects the growing political tensions that are hindering the resolution of the problem by raising or suspending the public debt ceiling, at a time when the deadline for the US public debt to reach the legally established ceiling is fast approaching.”

Congress needs to raise or suspend the public debt ceiling as soon as possible to avoid the United States falling into default, for the first time in its history.

According to the US Treasury Department, public debt can reach its legally established ceiling within only nine days.

The US public debt ceiling currently stands at $31 trillion.

Read: Debt ceiling date upon us; no agreement yet between Democrats, Republicans

The announcement comes after debt ceiling negotiations between President Joe Biden and House Speaker Kevin McCarthy failed to reach an agreement.

On Wednesday, McCarthy said discussions about raising the debt ceiling are progressing toward an agreement, but both sides continue to disagree on spending. He hoped that an agreement would be reached before the deadline. But members of the House were told that their week-long vacation would begin on Thursday, although they were notified they could be called to vote.

In its statement, Fitch stressed that it “expects” a sound decision by the US in due course, but nonetheless, experts believe there is “an increased risk that the debt ceiling will not be raised or suspended in a timely manner and that the government will start failing to make some payments.”

Fitch warned that “failure to reach an agreement (…) will be a negative sign in terms of governance in general and the desire of the United States to meet its obligations on time.”

The agency confirmed that it will closely monitor developments in the US public debt ceiling, noting that if the US does not pay debt maturing on June 1 or 2, it will be considered in default, and subsequent debts maturing within 30 days will become “very risky,” meaning that the degree of these debts will become “CCC”.

As for the rest of the debt, Fitch said its rating will remain unchanged as the US has the largest reserves of funds in the world.

In 2011, during lengthy negotiations over the debt ceiling, Standard & Poor’s downgraded the US credit rating, but Fitch did not.

Click here for more on debt-related issues.

The stories on our website are intended for informational purposes only. Those with finance, investment, tax or legal content are not to be taken as financial advice or recommendation. Refer to our full disclaimer policy here.