Two rating agencies placed the United States on a negative watch over recent negotiations to amend the debt ceiling between President Joe Biden and House Speaker Kevin McCarthy.
The debt ceiling, a statute established by Congress that prevents the government from spending beyond a predetermined national debt limit of $31.4 trillion, exceeded the threshold earlier this year. Republicans want to link an increase in the debt limit with spending caps, while Democrats say they prefer separate processes for debt limit negotiations and budget reforms, a debate which occurs even as the government nears default as soon as June 1.
Fitch Ratings, considered one of the three most influential credit rating agencies in the nation, said in an outlook on Wednesday that the AAA rating currently held by the U.S. could be reconsidered because of “increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit.” The firm, which nevertheless anticipates that the debt ceiling will be amended before the estimated deadline, added that persistent failures to “meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden” also have negative implications for creditworthiness.
“The absence of a medium-term fiscal framework and a complex budgeting process has contributed to the failure to reverse successive debt increases caused by economic shocks and other fiscal accommodations,” the firm added. “Political partisanship has brought about repeated debt-limit brinkmanship and led to near-default episodes that could erode confidence in the government’s repayment capacity.”
