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Fitch Warns on US Credit Rating Amid Debt Ceiling Negotiations

Fitch Ratings has put the U.S. credit rating at risk of downgrade because of the potential that the U.S. government will not be able to come to an agreement to raise its debt limit and be able to pay its bills. 

Fitch said Wednesday it “still expects a resolution” but that there is an increased risk the debt limit will not be raised in time. 

U.S. Treasury Secretary Janet Yellen has said the government could run out of money to meet its obligations, such as interest on government bonds, salaries for federal workers and government contractors and stipends to pensioners, as early as June 1. 

A Treasury Department statement late Wednesday said the Fitch warning “underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.” 

A White House statement said the move by Fitch “reinforces the need for Congress to quickly pass a reasonable, bipartisan agreement to prevent default.” 

White House budget officials and House Republican negotiators have been meeting this week as they try to resolve the impasse.  Discussions have involved both increasing the debt limit and trimming future federal spending.

Republican House Speaker Kevin McCarthy told reporters Wednesday that the negotiations were still productive, but days of talks have yet to produce an agreement that both sides believe could win a majority vote in both houses of Congress.    

“I firmly believe we will solve this problem,” McCarthy said. “We’re not going to default.”   

It remained unclear, however, exactly how President Joe Biden and Democrats pushing for only relatively modest cuts in government spending and Republicans pushing for steeper ones could get to an agreement, and to what extent the debt ceiling would be increased beyond its current $31.4 trillion level.    

“I will not raise taxes,” McCarthy said, rejecting a White House proposal to increase taxes on the wealthiest U.S. taxpayers and large corporations. Nor, he said, would he allow a House vote on a measure to raise the debt ceiling without accompanying it with spending cuts.    

“Sixty percent of Americans believe we should not raise the debt ceiling without cutting spending,” he said.    

White House press secretary Karine Jean-Pierre told reporters Wednesday that the Biden administration believes it is possible to reach a “reasonable bipartisan agreement that Republicans and Democrats in the House and the Senate can move forward with.” 

Jean-Pierre said the American people do not want what she called “devastating cuts” sought by Republicans. 

“House Republicans have said we need to make these cuts in the name of fiscal responsibility and deficit reduction, but that’s not what this is about. That’s never been what this is about for them,” Jean-Pierre said. “Because even as they fight to gut investments in hardworking families, they want to turn around and protect tax breaks skewed to the wealthy and corporations.”   

The government reached its existing borrowing limit in January, but the Treasury adopted “extraordinary measures” since then to keep paying its bills. Without enough new tax receipts flowing into government coffers in the first days of June, the government would then face the difficult choice of deciding which bills to pay.    

Officials have warned that a default by the United States, the biggest global economy, could prove catastrophic, roiling the world’s stock markets, forcing job layoffs in the U.S. and hurting the U.S. credit standing, resulting in higher interest rates for borrowers.    

The U.S. government has raised its debt ceiling 78 times over several decades, under both Democratic and Republican presidents, and three times under former President Donald Trump.    

Some information for this report came from The Associated Press, Agence France-Presse and Reuters. 

             

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