America’s hyper partisanship could cost it its sterling AAA credit rating, Fitch warns
May 25, 2023, 6:00 AM
The U.S. Capitol Dome is seen during on April 17 in Washington, DC. A deadlocked Congress that has taken America to the brink of default could jeopardize the United States’ perfect credit rating. Photo credit: Anna Moneymaker/Getty Images/FILE
(CNN) — A deadlocked Congress that has taken America to the brink of default could jeopardize the United States’ perfect credit rating, Fitch said in a stern warning Wednesday.
The credit ratings agency placed top-ranked US credit on rating watch negative, reflecting the uncertainty surrounding the current debt ceiling debate and the possibility of a first-ever default.
The move comes as as Republican and Democratic lawmakers negotiate to raise the US debt limit, though no deal has yet been reached. With Treasury Secretary Janet Yellen saying the US may be unable to pay its bills as soon as June 1, the country faces the possibility of an unprecedented default, which could have disastrous effects both in the United States and all over 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 could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit.
“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” the company said in a statement.
However, Fitch added that it still believed lawmakers would pass a resolution before the “X-date.”
The White House on Wednesday pointed to Fitch Ratings’ move as cause for urgency on raising the debt ceiling.
“This is one more piece of 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 agreement to prevent default,” a White House spokesperson said in a statement.
The Treasury Department on Wednesday night also emphasized that, and said a potential downgrade shows why Congress must immediately address the debt ceiling.
“As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” Treasury spokesperson Lily Adams said in a statement.
“Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” Adams said
In 2011, S&P gave its first-ever credit downgrade to the US, cutting its rating to AA+. More than a decade later, that agency has still not restored its rating.
A US default could send shockwaves throughout 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 to economic growth.
Dow futures fell more than 85 points on Wednesday night amid Fitch’s warning, but the S&P 500 and Nasdaq traded in positive territory.
