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Fitch puts US on negative watch without debt ceiling deal

Date: February 23, 2024 Time: 22:23:39

So much goes to the fountain that in the end it breaks… and the United States is gambling with the lack of agreement to raise the debt ceiling in the world’s largest economy. As if the warnings from Janet Yellen, the US Treasury secretary, are not enough, the credit rating agencies are getting on board. Early Thursday morning was Fitch, which put the rating of the US debt on negative observation due to the political disagreement and the tight schedule: an agreement would have to be reached before June 1.

Although it is not the first time that the largest economy in the world has found itself in this position, nervousness is beginning to spread to the debt market and the stock markets as the deadline approaches. The agency warned in a note that this for the possible reduction “reflects the increase in political partisanship that is blocking the scope of a resolution to raise or suspend the debt limit despite the rapid proximity of date X,” according to EFE.

Date X refers to the moment that the Treasury Department estimates that the country’s reserves will run out if Congress fails to agree to raise the debt ceiling, which was reached in January and marks the legal limit to the money that can be requested. borrowed from the government.

Fitch indicates that it expects “a resolution on the debt limit before date X”, but believes that the risks have “increased” that it will not be raised or suspended before that moment and that, “consequently, the Government may begin to default on some of its obligations”.

In spite of everything, the agency qualified its message by indicating that it estimates “a very low probability” that the US does not comply with the payments on the debt titles “in full and on time”, and also has expectations that this “will stay at ‘AAA’ even in a default scenario”.

President Joe Biden and the leader of the Republicans in Congress, Kevin McCarthy, assured this Wednesday that the suspension of payments is not an option and they are moving forward, but the situation seems stuck, with the president refusing to accept the demands of the opposition to spending less than last year.

While US debt is often seen as a safe asset in financial markets, from time to time the country faces default because the government can only borrow up to the limit set by Congress. In general, the country tends to raise or suspend the limit without conditions, such as reclaiming the White House, and this is what has happened more than 70 times since the 1970s.

In 2011, a situation very similar to the current one resulted in the reduction of the country’s credit rating by the risk agency Standard & Poor’s from “AAA” to “AA+

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Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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