NEW YORK (Dispatches) - Fitch Ratings has said that political brinkmanship over the U.S. debt limit could damage the country’s otherwise top-notch credit rating, a day after S&P Global Ratings issued a similarly severe warning.
Fitch said that while the debt ceiling - America’s legislative cap on funding government spending with borrowing - may still be moved, a lack of political consensus on raising or suspending the limit could increase the risk of a U.S. credit default.
“Fitch believes that the debt limit will be raised or suspended in time to avert a default event, but if this were not done in a timely manner, political brinkmanship and reduced financing flexibility could increase the risk of a U.S. sovereign default,” the ratings firm wrote in a memo. In the case of a missed payment, Fitch said it would downgrade the U.S. rating until the default event was cured.
The memo then detailed once unthinkable considerations Fitch would take in assessing U.S. creditworthiness: “willingness to pay, the effectiveness of government and political institutions, the coherence and credibility of economic policy, the potential long-term impact on the government’s cost of funding and cost of capital for the economy as a whole, and the implications for long-term economic growth.”
Fitch has had a negative outlook on the U.S.’s AAA rating since July 2020.
The Fitch statement came a day after S&P Global Ratings said an unprecedented U.S. default would result in a credit downgrade to a D rating, the lowest possible.