Economists not buying Fitch’s threat to cut U.S. credit rating
NEW YORK (CNNMoney) Two years ago, an 11th-hour deal to raise the debt ceiling wasn’t enough to stop Standard & Poor’s from downgrading the nation’s credit rating. And that downgrade sparked a plunge in stocks.
But 16 economists surveyed by CNNMoney Wednesday morning aren’t worried about either scenario this time around. That’s even after credit rating agency Fitch warned late Tuesday that the U.S. rating is at risk due to “political brinkmanship.”
Fitch said it may downgrade the U.S. even if the deal to raise the debt ceiling that was just announced by the Senate passes Congress before Treasury runs out of cash.
But economists aren’t buying Fitch’s threat. They say the risk of a downgrade will vanish when the debt ceiling is raised.
“Unlike Southern Europe, the ability of the U.S. to service its debt is not an issue at this point in time,” said Sean Snaith, a professor at the University of Central Florida. “This is a political, procedural crisis, not a crisis based on economic fundamentals.”
But even if there is another downgrade, 75% of the economists aren’t worried about the market reaction, or any kind of hit to the economy.
“The stock market might drop, but it would quickly rebound once a deal is done,” said James Smith of Parsec Financial Management. “Treasury yields have already gone up a lot from the ‘taper tantrum’, so the 10-year won’t move much, if at all.”