Fitch warns U.S.: Make a deal to avert default or get cut
(Reuters) – Fitch Ratings warned on Tuesday it could cut the sovereign credit rating of the United States from AAA, citing the political brinkmanship over raising the federal debt ceiling.
“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,” the firm said in a statement.
The firm put its opinion about the creditworthiness of U.S. government debt on what its calls Ratings Watch Negative, a reflection of the increasing risk of a near-term default if the debt limit is not raised in time. It gave itself until the end of the first quarter of 2014 to decide whether it will actually cut the rating.
Still, Fitch reaffirmed its belief that an agreement to raise the debt ceiling will be reached, allowing the U.S. government to pay its bills by borrowing beyond the $16.7 trillion limit currently in place.
Fitch is the only one of the three major credit rating agencies to have a negative outlook on the U.S. sovereign credit. Standard & Poor’s downgraded the rating to AA-plus with a stable outlook during the last debt ceiling impasse, in August 2011.
“It seems like what we saw from S&P just before the downgrade, they were essentially warning us that the debt ceiling standoff will not be tolerated and this is not in line with a country that maintains an AAA credit rating. It’s citing these artificial default risks as the main reason … They are essentially saying get this done now,” said Gennadiy Goldberg, interest rate strategist at TD Securities in New York
Fitch reiterated that the delay in increasing the borrowing capacity of the United States raises questions about the ability of the United States to honor its obligations.
Moody’s Investors Service rates U.S. government debt at Aaa with a stable outlook.
