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Debt ceiling prompts Fitch to place U.S. AAA rating on negative watch

Fitch puts U.S. AAA rating on negative watch over debt ceiling

Fitch puts U.S. AAA rating on negative watch over debt ceiling

Fitch Ratings, one of the big three ratings agencies, has placed the United States’ AAA long-term foreign-currency issuer default rating on negative watch. This comes as negotiations surrounding the debt ceiling continue with little progress.

“The Rating Watch Negative reflects increased political partisanship that is hindering reaching a solution to raise or suspend the debt limit despite the fast-approaching x-date,” Fitch said in a statement.

Futures linked to the Dow Jones Industrial Average briefly slipped about 100 points after Fitch’s announcement. The X-date, when the U.S. could default on its debt, could arrive as early as June 1, according to Treasury Secretary Janet Yellen.

Despite the negative outlook, Fitch still expects Washington officials to arrive at a resolution before the deadline. “However, 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,” the rating agency said.

Negotiations between teams representing President Joe Biden and House Speaker Kevin McCarthy have fallen short of an agreement. On Wednesday, McCarthy said discussions over raising the debt limit were progressing toward a deal, but both parties continue to clash over spending.

The announcement from Fitch comes as House members were informed their weeklong recess would begin on Thursday, although they were put on notice they could be called back for a vote.

FAQs:

What is the debt ceiling?

The debt ceiling is the maximum amount of money that the United States government is legally allowed to borrow to meet its existing obligations, including Social Security and Medicare benefits, military salaries, and interest on the national debt.

What happens if the debt ceiling isn’t raised?

If the debt ceiling isn’t raised, the government may not be able to pay all of its bills, leading to a default on its debt. This could damage the economy and cause financial instability both within the United States and globally.

When is the X-date?

Treasury Secretary Janet Yellen has said that the X-date, when the U.S. could default on its debt, could arrive as early as June 1.

Fitch puts U.S. AAA rating on negative watch over debt ceiling
Fitch puts U.S. AAA rating on negative watch over debt ceiling

Negative Watch Placed by Fitch on AAA Rating of U.S. due to Debt Ceiling

Fitch, one of the big three ratings agencies, has put the United States’ AAA long-term foreign-currency issuer default rating on negative watch. The rating agency cited increased political partisanship, undermining the reaching of a solution to raise or suspend the debt limit despite the fast-approaching X-date. Fitch noted, however, that it still expects US officials to arrive at a resolution before the deadline, warning that “risks have risen that the debt limit will not be raised or suspended before the X-date and consequently that the government could begin missing payments on some of its obligations”. Futures linked to the Dow Jones Industrial Average briefly slipped about 100 points after Fitch’s announcement. Negotiations between President Joe Biden’s team and House Speaker Kevin McCarthy’s team have fallen short of an agreement over raising the debt limit, with both parties clashing over spending. The X-date, when the US could default on its debt, could arrive as early as 1 June, according to Treasury Secretary Janet Yellen.

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