Noting that the United States may default on its $31 trillion national debt within a matter of days amid “debt ceiling brinkmanship,” the Fitch credit rating agency has issued a warning that the US may soon be stripped of its AAA credit rating.
On Wednesday night, the ratings firm officially put the United States on “Ratings Watch Negative,” noting the quickly approaching debt ceiling, which the Treasury Department says may be reached as quickly as June 1st, as well as the inability of the country’s leaders to clearly navigate toward a deal.
Although Fitch noted that it expects lawmakers will reach a deal before the United States goes into default, it added that it is possible that the government might still “begin to miss payments on some of its obligations,” which is “unlikely to be consistent with a ‘AAA’ rating.”
The agency further warned, “Similarly, avoiding default by non-conventional means such as minting a trillion-dollar coin or invoking the 14th amendment is unlikely to be consistent with a ‘AAA’ rating and could also be subject to legal challenges.”
If the nation were to see its rating downgraded, the effects on the economy, as well as the nation’s global financial standing would be dramatic. A ratings downgrade could produce increased borrowing costs, diminished investor confidence, and greater economic volatility as sensitive financial markets respond to the sudden change in credit rating.
For weeks, both Republicans and Democrats have jockeyed for position as they sought an agreement to increase the debt ceiling amid warnings from Treasury Secretary Janet Yellen that the US was highly likely to default unless quick action was taken. A default would be the first in the history of the nation, as so far the United States government has never defaulted on its debt. Currently the national debt sits at over $31 trillion.
Yellen had previously noted that the Treasury has taken “extraordinary measures” to meet its federal obligations since January, however the effectiveness of those measures will run out in June.
President Joe Biden and Republican House Speaker Kevin McCarthy have held several talks this week, however they reportedly hit a “speed bump” Wednesday according to a report by NBC, quoting an unnamed Democrat staffer. The staffer reported that Republicans are seeking major spending cuts, and noted that McCarthy had said he wanted the budget for next year to be smaller than the budget for 2023.
On Wednesday, in an address to reporters, the House Speaker said that both sides were “still far apart,” but voiced hopes that before next week they could negotiate a deal, noting, “we’re not going to default.”
