Fitch warns fight against debt ceiling could cost America its AAA credit rating



By Matt Egan

Fitch Ratings warned Friday that the fight in Washington to raise the debt ceiling could force the firm to lower America’s AAA credit rating.

“The failure of the latest efforts to suspend the US federal government’s debt limit indicates that the current stalemate may be among the most prolonged since 2013,” Fitch said.

Echoing what S&P Global Ratings said on Thursday, Fitch said he believed the debt limit would be raised or suspended “in time to avoid an event of default.”

However, Fitch added that “if this is not done in a timely manner, the political swindle and reduced funding flexibility could increase the risk of a US sovereign default.”

The Treasury Department has warned it will run out of cash and exhaust extraordinary measures by October 18. At this point, the Treasury would no longer have 100% confidence in its ability to pay US bills.

Fitch suggested that moving closer to that date could trigger a downgrade.

“We consider that reaching the Treasury date X without raising the debt limit as the main extreme risk to the US sovereign’s willingness and ability to pay,” Fitch said. “If it seemed likely, we would revise the US sovereign rating, with likely negative implications.”

Fitch reiterated that the United States would likely be downgraded even if it continued to pay bondholders, but delayed other payments like Social Security and paychecks to federal workers.

“Prioritizing debt payments, assuming it is an option, would lead to non-payment or delayed payment of other obligations, which would likely undermine the ‘AAA’ status of the United States.” , Fitch said.

In the fight against the debt ceiling in 2011, S&P first lowered the credit rating of the United States, while Fitch and Moody’s maintained a perfect AAA rating on the world’s largest economy. Fitch has had a negative outlook on the United States since July 2020.

“The impasse on debt containment reflects a lack of political consensus that has hampered the United States’ ability to meet fiscal challenges for some time,” Fitch said Friday.

Fitch said that amending the reconciliation bill to address the debt ceiling “seems the most viable option to raise the debt ceiling, but the process would take some time in the Senate.”

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