A deadlocked Congress that has taken America to the brink of default could jeopardize the United States’ perfect credit rating, Fitch said in a stern warning Wednesday.
The credit ratings agency placed top-ranked US credit on rating watch negative, reflecting the uncertainty surrounding the current debt ceiling debate and the possibility of a first-ever default.
The move comes as as Republican and Democratic lawmakers negotiate to raise the US debt limit, though no deal has yet been reached. With Treasury Secretary Janet Yellen saying the US may be unable to pay its bills as soon as June 1, the country faces the possibility of an unprecedented default, which could have disastrous effects both in the United States and all over the world.
Fitch, one of the top three credit rating agencies along with Moody’s and S&P, placed the US “AAA” on “rating watch negative,” signaling that it could downgrade US debt if lawmakers do not agree on a bill that raises US Treasury’s debt limit.
“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 (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” the company said in a statement.
However, Fitch added that it still believed lawmakers would pass a resolution before the “X-date.”
In 2011, S&P gave its first-ever credit downgrade to the US, cutting its rating to AA+. More than a decade later, that agency has still not restored its rating.
A US default could send shockwaves throughout the global economy and potentially cause a recession, according to experts. That could mean higher borrowing costs for the government and Americans themselves and a massive drag to economic growth.
Dow futures fell more than 85 points on Wednesday night amid Fitch’s warning, but the S&P 500 and Nasdaq traded in positive territory.
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