US AAA Credit Rating May Be Cut by Fitch on Debt-Limit Impasse

Fitch Ratings said it may downgrade US credit ratings to reflect the worsening political standoff that’s preventing a deal to solve the nation’s debt ceiling crisis.

(Bloomberg) — Fitch Ratings said it may downgrade US credit ratings to reflect the worsening political standoff that’s preventing a deal to solve the nation’s debt ceiling crisis.

“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 ratings company said in a statement, referring to the point at which the government runs out of cash.

The traditional haven yen spiked as traders reacted to the news before paring gains. Treasury futures saw a modest dip.

Economists project a US default could trigger a recession, with widespread job losses and a surge in borrowing costs. Still, it’s not unusual for Congress to strike deals at the last minute when the pressure becomes big enough to force negotiators to make painful choices.

“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,” Fitch said in its statement. The company said it still expected a resolution to the debt limit beforehand.

House Speaker Kevin McCarthy expressed optimism Wednesday that White House and GOP negotiators would reach a deal in time to avert a potentially catastrophic default.

McCarthy Says GOP and White House ‘Have Time’ to Reach Debt Deal


The California Republican’s comments came after a four-hour meeting between his and President Joe Biden’s hand-picked negotiators, fueling optimism Congress will act before June 1, the date by which Treasury Secretary Janet Yellen has warned the US could run out of money to pay its bills.

“I still think we have time to get an agreement, and get it done,” McCarthy said after the meeting concluded.

Fitch’s announcement is “a bit of a slap” to the negotiators, said Tony Sycamore, an analyst at IG Australia Pty Ltd. in Sydney. “It just adds urgency that these two guys get together, or these two parties get together because their lack of action is making the ratings agencies nervous, and i think the markets are very nervous as well.”

Debt-Ceiling Anxiety Tracker: T-Bill Yields Top 7%, Fear Spreads

In 2011, S&P Global Ratings drew fire for downgrading the US from AAA after a similar brush with default. That spurred a selloff in risk assets like equities around the world, but ironically boosted Treasuries as investors sought out havens.

S&P has retained a stable outlook on the rating during the latest fracas, anticipating a deal will be struck.

Moody’s Investors Service’s William Foster, a senior credit officer, said in an interview last week that he was “hearing the right things out of Washington,” and his firm has kept the US’s top rating intact through the fitful negotiations since.

The Fitch warning is “certainly very symbolic, and in a way it may force Moody’s to follow suit,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “It will also place more scrutiny on the dollar and Treasuries as havens and its risk-free rate qualities.”

–With assistance from Margaret Collins, Michael Mackenzie and Matthew Burgess.

(Updates with additional context and comment. A previous version of this story corrected the date of Moody’s comments.)

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