Fitch downgrades US credit rating due to debt ceiling impasse

Leading credit agencies have warned they may downgrade America’s ratings due to the political impasse surrounding the debt ceiling for federal government.

Fitch has placed the United States top “AAA”, ratings on a negative watch. They cited “increased partisanship” in negotiations to avoid a catastrophic default. The United States is said to be in danger of not having enough money to pay their bills by June 1. Discussions between the White House officials and Republican officials, however, have failed to produce any results.

The agency stated that “Fitch expects a solution to the debt ceiling before the x date.” “However we think that risks have increased that the debt ceiling will not be increased or suspended before x-date, and that the government may start to miss payments for some of its obligations.

The US creditworthiness is at risk due to the brinkmanship surrounding the debt ceiling and the failure of US authorities to tackle the medium-term fiscal issues that will result in rising budget deficits.

Janet Yellen has warned repeatedly that an unprecedented default would cause an economic crisis. She described “early signs of substantial market pressure” on Wednesday at The Wall Street Journal CEO Council. Since January, the federal government has taken “extraordinary measures” in order to meet its obligations. This involves moving money around and buying time.

In 1939, the US government was given a maximum amount of debt it could issue. Congress must approve any increases, extensions or revisions.

The Republican leaders demanded that spending be cut in exchange for their support. Kevin McCarthy, US House Speaker said that the negotiations in Washington had been very successful. “I want to ensure we get the correct agreement. I can tell that we are working toward that.”

Karine Jean-Pierre also hinted at a possible deal. She told a press briefing that if the talks continue in good faith they could lead to an agreement.

Fitch’s statement, however, highlights the growing apprehension, as the deadline approaches. Standard & Poors downgraded the US’ AAA rating in 2011 after another political fight brought the US to the edge of default. A deal was reached at the very last minute.