Monday, October 25, 2021

Fitch says US sovereign rating debt limit under pressure from Brinkmanship

Fitch Ratings said Friday that the United States’ AAA sovereign credit rating could be put under pressure if federal lawmakers fail to address debt limits in a timely manner, noting that political frivolity and reduced financing flexibility lead to default. risk may increase.

The two-year suspension of the debt limit expired in July, and Democrats and Republicans in Congress remain at odds. The credit rating agency said it believes that timely action will be taken to raise or suspend the loan limit to avoid default. But it said the failure of the latest efforts to address the matter “indicates that the current impasse may be the longest since 2013.”

US Treasury Secretary Janet Yellen has warned that the government could run out of cash by October 18 if the debt limit is not raised or suspended, making it the first to default.

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“We see the Treasury reaching the ex-date [October 18] “Without raising the debt limit as a major tail risk to the US sovereign’s willingness and ability to pay,” Fitch said in a report. “If this appears to be the case, we will review the US sovereign rating with potential negative implications.”

As for default, Fitch said it will “downgrade only affected devices to a default rating level, while non-defaulting instruments that continue to perform will retain their then-current rating.”

It added that the United States would still have limited ability to make payments after October 18, but would depend on “floating revenue and expenditure flows” and that priority could reduce the immediate risk of missed payments.

Fitch has had a negative outlook on the AAA rating since July 2020.


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