Fitch Ratings has downgraded the United States’ AAA credit rating, citing the potential of a sovereign default as debt-ceiling discussions approach the early June deadline.
“The Rating Watch Negative reflects increased political partisanship that is impeding agreement to raise or suspend the debt limit despite the fast-approaching x date (when the United States Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt”),” Fitch said.
“Fitch still expects a resolution to the debt limit before the x-date,” the credit ratings agency said. However, we think that the chances of the debt ceiling not being raised or suspended before the x-date have increased, and that the government may begin to miss payments on some of its commitments.”
Fitch cautioned that “the debt ceiling brinkmanship, failure of US authorities to meaningfully address medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to US creditworthiness.”
Debt-Ceiling Negotiations Continue
Negotiators for the White House and House Republicans resumed debt-ceiling negotiations on Wednesday. Without an agreement to extend the debt ceiling, the country will default in early June.
House Speaker Kevin McCarthy said that there is still “time” to reach a debt-ceiling agreement.
The chances of a US default are “around 25% and rising,” according to JPMorgan Chase chief US economist Michael Feroli in a letter to clients on Wednesday.