The credit rating agency on Wednesday announced a possible credit rating of the United States, aggravating tensions in negotiations over the country’s debt ceiling and jitters in global markets.
Fitch put the country’s rating at “AAA”, the highest level, on negative watch as the first step to a possible level if lawmakers fail to increase the amount of money the Treasury can borrow before it runs out of money, which could happen in the first week or so. .
A price downgrade could affect trillions of dollars in Treasury debt securities. Fitch’s advice was reminiscent of 2011, when S&P in the United States was “gradually downgraded to AA-plus and gradually used and sunk into the equity markets.”
Nerves fell in Asia on Thursday as investors remained wary of asset risks due to the hit the global economy would suffer if the United States were to default. Treasury bills due around June 1, a key day for the nation’s money to run out, were under pressure for weeks and fell further, pushing the yield on June 1 notes down to 7.628%. [MKTS/GLOB]
“It’s not entirely unexpected that there’s chaos surrounding the air deal,” said Tony Sycamore, an analyst at IG Markets in Sydney.
Negotiations between the administration of Democrat Joe Biden and Republicans in Congress are deadlocked over raising the $31.4 trillion debt ceiling and Fitch said its rating could be lowered if the United States does not raise or suspend its debt ceiling on time.
“Fitch is still awaiting a resolution on the debt limit before the key date,” the credit report said.
“However, we believe that the risks are increased, that the debt term cannot be lifted or suspended before the deadlines, and by this, that the default of the republic in some obligations begins.”
Fitch said the failure to reach agreement “is a negative sign of the entire government and the intentions of the United States to honor its obligations in a timely manner” and is unlikely to be consistent with a “AAA” rating.
A US spokesman for the fund called the move a warning, saying it underscored the need for a deal. The White House said that “in addition, evidence is not a default option.”
ANNOTATED
A negative debt rating of “watch” or “watch” indicates that there is an increased likelihood of a credit rating change and the likely direction of such a change. It differs from an “outlook rating” which indicates the direction in which the rating is likely to move over a period of one to two years.
Fitch now predicts the United States will have more than that, making the deficit 6.5% of the country’s total economy in 2023 and 6.9% in 2024.
Among other credit rating treatments, Moody’s also has an “Aaa” rating in the United States with a stable mental outlook, giving Moody’s highest credit rating to loans.
S&P Global’s rating is “AA-plus”, the second highest possible. S&P stripped the United States of its coveted top rating over the ceiling showdown in Washington in 2011, days after many said at the time that it would not stabilize “medium-term debt dynamics”.
Moody’s previously said he hoped the United States would continue to pay its debts on time, but that state courts could be more willing to change assessments by lawmakers on the debt business.
Fitch had already placed the United States on negative rating watch in October 2013, due to debt issues at the time.
