Credit-ratings agency Fitch on Tuesday put the United States’ credit rating on watch negative, giving the country notice that they might downgrade its credit rating because, with less than 48 hours to go until the Department of the Treasury says the U.S. will hit the debt ceiling, D.C. has yet to agree on a deal to raise it.
“The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures,” the release from Fitch explains.
“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,” it says.
“Although the Treasury would still have limited capacity to make payments after 17 October it would be exposed to volatile revenue and expenditure flows. The Treasury may be unable to prioritize debt service, and it is unclear whether it even has the legal authority to do so. The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens — all of which would damage the perception of U.S. sovereign creditworthiness and the economy,” the release goes on.
Fitch added that the continued negotiations, which were galumphing along when Fitch issued the ratings watch negative, “risks undermining confidence in the roll of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S.”
The House and the Senate have been working over the past several days to secure a deal that would raise the debt ceiling before Thursday, when Treasury Secretary Jack Lew has said the U.S. will reach its debt limit. But negotiations have repeatedly stalled, as the House and Senate seek to strike a deal that would avert the debt default and also reopen the government, which has been shut down for 15 days.
Late last week, senators appeared to be coalescing around a plan put forward by Maine Republican Sen. Susan Collins, which had bipartisan support. But that bill was put aside, and late Monday evening, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell sketched out the rough outlines of a deal. On Tuesday, the House Republican leadership put forward a counterproposal, which Reid and the White House promptly rejected. Reid and McConnell then suspended their negotiations Tuesday afternoon to wait and see what the House would do. The House has scheduled a vote on a revised version of their counterproposal for later Tuesday evening.
In 2011, when Congress was in a similar situation arguing over raising the debt ceiling, the credit ratings agency Standard and Poor downgraded the U.S.’s credit rating.