Fitch has put the United States’ AAA default rating on negative watch as political parties fail to agree on debt ceiling deal.
Major credit rating agency Fitch put the United States’ AAA long-term foreign-currency issuer default rating on negative watch yesterday, citing an increased risk of the first ever US default.
The agency said: “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.”
Earlier this month, the US Treasury warned that it may not be able pay the government’s bills beyond June 1 (the ‘x-date’) if Congress doesn’t increase the debt ceiling.
Negotiations have been underway but a deal is yet to be reached as lawmakers continue to clash over spending. Speaking at the G7 Summit on May 21, President Joe Biden slammed Republican debt proposals as “unacceptable” and “extreme”, stating he would not give tax breaks for oil companies while neglecting American workers and Medicaid.
The Biden administration put forward a proposal that cuts spending by $1 trillion dollars on top of a $3 trillion in deficit reduction proposed through spending cuts and new revenues.
While Fitch expects a resolution to the debt limit before the June 1, the risk of a default has increased enough to threaten the country’s perfect triple-A credit score.
Fitch added: “The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness.”
In the unlikely event that a deal isn’t reached, the US would be unable to meet its financial obligations, marking the first ever default. This would have catastrophic consequences on both the national and global economy, since the US dollar serves as the world’s primary reserve currency. It would be particularly devastating for American citizens who rely on government-funded benefits.
Republican House speaker Kevin McCarthy said yesterday that discussions were progressing.
After a day of negotiations at the White House, he told Fox Business: “I wouldn’t scare the markets in any shape or form. We will come to an agreement worthy of the American public and there should not be any fear. Money’s coming in [to the Treasury] every day.”
Despite McCarthy’s optimism however, members of the House were informed they would not be required to stay in Washington over the weekend to vote, suggesting that a deal isn’t imminent.
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