Fitch puts US rating on negative watch

Ratings agency Fitch has put the United States’ credit on watch for a possible downgrade, raising the stakes as talks over the country’s debt ceiling go down to the wire, and adding to the jitters in global markets.

Fitch put the country’s ‘AAA’ rating, its highest rank, on a negative watch in a precursor to a possible downgrade should lawmakers fail to raise the amount that the Treasury can borrow before it runs out of money, which could happen as soon as next week.

A downgrade could affect the pricing of trillions of dollars of Treasury debt securities. Fitch’s move revived memories of 2011, when S&P downgraded the United States to Aa-plus and set off a cascade of other downgrades as well as a stock market sell off.

“It’s not entirely unexpected given the shambles that is the debt ceiling negotiations,” said Tony Sycamore, analyst at IG Markets in Sydney. “This is not a great sign.”

President Joe Biden’s administration and congressional Republicans are at an impasse over raising the $31.4 trillion debt ceiling, and Fitch said its rating could be lowered if the US does not raise or suspend its debt limit in time.

“Fitch still expects a resolution to the debt limit before the X-date,” the credit agency said in a report. “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.”

Fitch said that the failure to reach a deal “would be a negative signal of the broader governance and willingness of the US to honor its obligations in a timely fashion,” and would be unlikely to be consistent with a “AAA” rating.

A US Treasury spokesperson called the move a warning and said it underscored the need for a deal.