Fitch Ratings placed the United States’ ‘AAA’ credit rating on negative watch late Tuesday following intense back-and-forth negotiations among policymakers about how to raise the nation’s borrowing limit before Thursday’s deadline.
In a statement, the ratings company said the ratings of all outstanding U.S. debt securities are also on negative watch.
“Fitch expects to resolve the (ratings watch negative) by the end of the (first quarter of 2014) at the latest, although timing would necessarily reflect developments and events, including the duration of any agreement to raise the debt ceiling,” the ratings service said in its statement Tuesday.
Fitch said the decision to put the U.S. credit rating on negative watch was driven by a number of key factors including the inability of Congress to come to an agreement on how to deal with runaway spending and mounting debt in a “timely manner” before the U.S. Treasury Department exhausts its extraordinary measures by October 17.
“Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default,” Fitch said.
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The Treasury Department said in a statement the decision by Fitch, "reflects the urgency with which Congress should act to remove the threat of default hanging over the economy.”
The ratings service noted though Treasury could use its cash reserves to make payments after Thursday, but it would be “exposed to volatile revenue and expenditure flows.” Further, it said it’s unclear whether the department could even have the legal authority to prioritize debt payments and the risk of delayed payments would damage the U.S. economic reputation and creditworthiness.
Fitch said it still believes the U.S. to be “more dynamic and resilient to shocks than its high-grade rating peers,” and affirms the credit rate at a platinum ‘AAA.’ Further, it forecasts the economy will grow 1.6% this year and 2.6% in 2014.
“Nevertheless, public debt stabilization at such elevated levels still render the US economy and public finances vulnerable to adverse shocks and in the absence of additional spending reform and revenue measures, deficits and debt will begin to rise again at the end of the decade,” Fitch said in a statement.
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