Raymond James Washington Policy Analyst Ed Mills discusses how the proposed debt ceiling deal could affect markets in “The Klaman Countdown.”
Fitch Ratings said Friday it was watching for a possible credit downgrade in the US despite Congress passing a bipartisan debt ceiling deal that would ensure the government pays its bills on time. Stated.
In a statement, the rating agencies said they were maintaining a “ratings watch negative” for the United States because they “combinedly consider the impact of recent brinkmanship policies and the outlook for the medium-term fiscal and debt trajectory.”
The warning came shortly after the Senate passed a bill that would raise the debt ceiling for two years in exchange for gradual spending cuts.
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Fitch praised the deal between President Biden and House Speaker Kevin McCarthy as “positive”, but expressed concern over the repeated use of the debt ceiling as a political game.
People walk outside the US Capitol Building in Washington on June 9, 2022. ((AP Photo/Patrick Semansky, File)/AP Newsroom)
In a statement, Fitch said, “Governance on fiscal and debt issues has been disrupted by repeated political conflicts, including over the debt ceiling and the last-minute suspension before the X-date (which would dry up the Treasury’s cash flow and temporary measures). We believe there is a decline in confidence in the .
A downgrade could force the U.S. government to pay higher interest rates on Treasury bills, Treasuries and short-term bills.
Fitch said it plans to end the negative watch in the third quarter.
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“The consistency and credibility of policymaking and the projected medium-term fiscal and debt trajectory will be key factors in our assessment,” the report said.
Fitch puts the United States first Negative watch A week ago, amid growing fears that Washington negotiators would be unable to reach a compromise to raise the debt ceiling,
President Joe Biden will meet with House Speaker Kevin McCarthy in the Oval Office of the White House on Monday, May 22, 2023. ((Photo credit: Demetrius Freeman/The Washington Post via Getty Images) / Getty Images)
debt ceilingis currently about $31.4 trillion and is the legal limit on the amount of debt the federal government can borrow on behalf of its citizens, including Social Security and Medicare benefits, military salaries, and tax refunds.
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If the U.S. fails to raise or suspend the debt ceiling, it could end up having to temporarily meet some of its debt, which could have serious consequences. negative economic impact. Interest rates will likely skyrocket and demand for U.S. Treasuries will fall. Even the threat of default could cause borrowing costs to rise, according to the Committee on a Responsible Federal Budget.
The United States has never defaulted on its debt, but in 2011 it came close to doing so. House Republican Ratings agency Standard & Poor’s downgraded the U.S. debt rating by one notch after it refused to pass a higher debt ceiling.
The General Accounting Office previously estimated that the 2011 confrontation and subsequent downgrade had raised the Treasury’s borrowing costs by about $1.3 billion.
