Fitch puts America’s AAA credit rating on negative watch amid debt ceiling battle

Credit rating agency Fitch warned on Wednesday that the United States’ AAA rating could be downgraded if a deal to raise the nation’s borrowing limit isn’t reached before the Treasury runs out of money to pay the country’s bills. 

“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,” the agency said. 

The US currently holds the highest rating possible for credit worthiness.

Fitch said it believes the White House and Congress will be able to raise the debt ceiling before the “x-date” – which Treasury Secretary Janet Yellen has said is June 1 – but the chances that an agreement won’t be reached have “risen,” leading it to issue the negative watch.

“Fitch still expects a resolution to the debt limit before the x-date. However, we believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations,” the agency said. 

“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,” it added. 

House Speaker Kevin McCarthy (R-Calif.) said on Wednesday that debt ceiling talks between Republican lawmakers and White House negotiators had reached a “breaking point,” but added that talks are going “better than they were yesterday.”

The California Republican has vowed not to agree to any deal with President Biden that doesn’t reduce government spending next year. 

McCarthy said Wednesday that House lawmakers will be allowed to leave Washington for the Memorial Day weekend and will be given 24 hours notice to come back to Capitol Hill and vote on a bill if a deal is reached. 

The House speaker said he will continue negotiations with the White House through the weekend, if necessary. 

Fitch notes that the US has “sizable payments” due between June 1-2, so the x-date could likely arrive next week, as Yellen expects, and before an agreement is reached.

“The failure to reach a deal to raise or suspend the debt limit by the x-date would be a negative signal of the broader governance and willingness of the US to honor its obligations in a timely fashion, which would be unlikely to be consistent with a ‘AAA’ rating, in Fitch’s view,” the ratings agency said.