Credit Rater Fitch Puts U.S. On ‘Negative Credit Watch’
Credit rating agency Fitch just sent a pretty strong signal to Washington, D.C.:
Late Tuesday afternoon, Fitch credit rating service announced that it put the U.S. on credit rating watch negative because of government failure to raise the debt ceiling in a “timely” manner. The ratings service affirmed the U.S. credit rating at AAA — a rating that it retained in the face of the debt ceiling debate in 2011 — but the announcement puts the U.S. credit rating at risk for a downgrade.
“The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures,” the ratings service said in a statement. “The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30bn. 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.”
This brinksmanship also “have some detrimental effect on the U.S. economy,” Fitch said.
The last time there was a debate over the debt ceiling, in July of 2011, Standard & Poor’s downgraded the U.S. credit rating for the first time in its history, taking it from a AAA to an AA+ and throwing the markets in turmoil. At that time, Moody’s and Fitch retained a rating of AAA. Earlier in October, Moody’s said that the current debt ceiling debate is less dire than that of 2011 and said that the U.S. creditworthiness would not be at risk this time around. Fitch, however, clearly disagrees.
“The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S.,” Fitch said on Tuesday. “This “faith” is a key reason why the U.S. ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns.”
Translation: Congress, get moving already.
Note: The link and excerpt in this post have been changed from the original, which inadvertently was a post from two weeks ago.