- Fitch Ratings says brinksmanship over the debt limit could hurt the U.S. credit rating.
- If the debt ceiling is not raised in time, “political brinkmanship and reduced funding flexibility could increase the risk of a US sovereign default,” the firm wrote.
- A day earlier, S&P warned that an “unprecedented” US standard would result in a credit downgrade to a D rating, the lowest possible.
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Fitch Ratings said on Friday that political brinksmanship across the US debt line could damage the country’s otherwise top-class credit rating, a day after S&P Global Ratings issued a similarly serious warning.
Fitch said that while the debt ceiling – America’s regulatory ceiling for financing public spending with borrowing – can still be moved, the lack of political consensus on raising or suspending the limit could increase the risk of a U.S. credit standard.
“Fitch believes the debt limit will be raised or suspended in time to avert a standard event, but if this was not done in a timely manner, political brinkmanship and reduced funding flexibility could increase the risk of a US sovereign default,” the firm wrote in a note. In the event of a missed payment, Fitch said it would downgrade the U.S. rating until the default event was cured.
The memorandum then describes some unimaginable considerations that Fitch would take into account when assessing US creditworthiness: the whole and the consequences for long-term economic growth. “
Since July 2020, Fitch has had a negative outlook on the US AAA rating.
The Fitch statement came a day after S&P Global Ratings warned that an “unprecedented” US standard would result in a credit downgrade to a D rating, the lowest possible.
“We do not think it will happen,” S&P US credit analyst Joydeep Mukherji told Reuters.
But if the United States wanted to standardize even a single instrument, “no one knows what the impact is,” Mukherji said. “We do not know, we do not want to know, but it will be big.”
On Tuesday, Finance Minister Janet Yellen announced that the government would exhaust its cash before October 18 if the debt limit was not raised.