The credit rating agency Fitch has put the “excellent” credit rating of the United States under watch for a possible downgrade. This raises the stakes as negotiations to raise the US debt ceiling approach critical moments.
Fitch put the country’s AAA rating on negative watch Wednesday evening; A prelude to a potential cut if lawmakers fail to increase the amount the Treasury can borrow before it runs out of money, which could happen next week.
The agency said in a statement that its decision “reflects the growing political tensions that impede resolving the problem by raising or suspending the public debt ceiling, at a time when the deadline” for the US public debt to reach the ceiling legally set for it is fast approaching. Congress must raise or suspend the public debt ceiling as soon as possible to avoid the United States falling, for the first time in its history, into default.
A credit rating downgrade could affect the pricing of US Treasury debt instruments, which are estimated at trillions of dollars. Fitch’s decision recalled what happened in 2011 when Standard & Poor’s downgraded the United States before starting a series of other downgrades, as well as a sell-off in the stock market.
Stocks fell in Asia on Thursday as investors remained wary of risky stocks; In anticipation of damage to the global economy if the US government defaults on paying its debts. “It’s not entirely surprising given the mess in the debt ceiling negotiations,” said Tony Sycamore, an analyst at IG Markets in Sydney, Australia.
President Joe Biden’s administration and Republicans in Congress are deadlocked over raising the federal debt ceiling of $31.4 trillion, with both sides deeming the other’s proposals grossly overstated. According to the US Treasury Department, the public debt can reach its legal ceiling within nine days, no more.
“(Fitch) still expects to reach a solution regarding the debt ceiling before the deadline,” the credit rating agency said in a report, but added, “However, we believe that the risks have increased to the extent that the debt ceiling will not be raised or suspended before the deadline, and therefore it could The government starts defaulting on some of its obligations.”
Fitch said a failure to reach an agreement “would be a negative indicator of the broader governance and willingness of the United States to meet its commitments at the appropriate time” and was unlikely to be consistent with an AAA rating.
The agency confirmed that it would closely monitor developments in the status of the US public debt ceiling, noting that if the United States did not pay debts due on June 1 or 2, it would be considered defaulting, and subsequent debts that would be due within 30 days would become “extreme.” Risks”; This means that the grade of these debts will become “CCC”… As for the rest of the debts, Fitch said that its rating will remain unchanged. As the United States has the largest reserves of money in the world.
A US Treasury spokesman described Fitch’s move as a warning and said it underlined the need for an agreement. The White House said it was “further evidence that default is not an option.”
Conversations going on
In the latest round of negotiations on this matter, negotiators representing Democratic President Joe Biden and Republican House Speaker Kevin McCarthy held what both sides described as productive talks on Wednesday, trying to reach an agreement to raise the US debt ceiling. After a four-hour White House meeting, McCarthy said negotiations had improved and would continue through the evening… He expected the two sides to reach an agreement, although many issues remain unresolved.
“We’ve made some progress… and that’s very positive,” McCarthy told reporters. “I want to make sure we get the most appropriate agreement.” And I can see that we are working towards that.”
White House spokeswoman Karen Jean-Pierre said the talks remain productive. “If it continues in good faith, we will be able to reach an agreement,” she added in a press statement during the discussions.
But the White House and Democrats in Congress have accused Republicans of holding the economy hostage to advance a program they otherwise could not pass. They said the Republicans should accept the concessions because they would need the votes of the Democrats to pass any deal.
Negotiators are racing against time, amid warnings. Economists say a government default would cause Wall Street to collapse and push the economy toward recession, with ordinary citizens also affected. Medical service providers, who depend on government payments, may be among the first to be affected.
The top Republicans in the House of Representatives said they would suspend the House session starting Thursday for the week-long Memorial Day holiday, but they would summon lawmakers to vote if necessary, according to “Punchpool News” … McCarthy insists that any agreement must not include raising taxes and must To cut spending, not to stabilize it, as Biden suggested.