New Constructs CEO David Trainer offers his economic outlook amid the Federal Reserve’s handling of inflation and the June 1 debt ceiling deadline on “The Claman Countdown.”
Credit rating agency Fitch Ratings said on Wednesday it has put the U.S.’s “AAA” rating on negative watch, pointing to increased political partisanship over the debt limit as the deadline to increase- or suspend it.
“The Rating Watch Negative reflects an increase in political partisanship that makes it difficult to reach a resolution to raise or suspend the debt limit despite the x-date fast approaching,” the agency said.
According to Fitch, the US reached its $31.4 trillion debt ceiling on January 19, 2023, which is when the US Treasury under Janet Yellen began making efforts to avoid breaching the debt ceiling.
Senate Minority Leader Mitch McConnell (R-KY), House Speaker Kevin McCarthy (R-CA) and U.S. 11 President Joe Biden meet with other lawmakers in the Oval Office on the White House on May 9, 2023 in Washington, DC. The legislators of Congress m (Anna Moneymaker/Getty Images/Getty Images)
The measures could be fully exhausted by June 1, and as of May 23, the Treasury’s cash balance was $76.5 billion.
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With several important payments pending between June 1 and 2, the x-date could come before an agreement is reached.
“Failure to reach an agreement to raise or suspend the debt limit by date x would be a negative signal of broader governance and US willingness to meet its obligations in a timely manner, which is unlikely which is consistent with an ‘AAA’ rating, according to Fitch,” the rating agency said.
Fitch Ratings warned it would downgrade the U.S.’s AAA credit rating if the country defaults. (REUTERS/Brendan McDermid (UNITED STATES) / Reuters Photos)
While the agency says it expects government leaders to reach a solution before the deadline, the U.S. may not be completely out of the woods.
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“Fitch still expects a resolution of the debt limit by date x,” the agency said. “However, we believe that the risks have increased that the debt limit is not raised or suspended before date xi, consequently, that the government may begin to miss payments on some of its obligations “.
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The news comes as the Biden administration and Republican House leaders have not reached an agreement on whether to raise or suspend the debt ceiling.
