US remains on negative credit watch despite debt deal, says Fitch

The United States’ AAA rating remains on negative watch, despite a debt limit agreement that will allow the government to meet its payment obligations, Fitch Ratings said on Friday.

Fitch said it would maintain the rating “as we consider all the implications of the latest bout of reckless policy and the outlook for medium-term fiscal and debt trajectories”.

The US Senate on Thursday approved a bipartisan bill backed by President Joe Biden that raises the public debt ceiling to $31.4 trillion after months of wrangling between Democrats and Republicans.

“Reaching a deal despite heated political partisanship and modestly reducing fiscal deficits over the next two years are positive considerations.Fitch said in a statement.

“However, Fitch believes that the repeated political clashes around the debt limit and the last-minute suspensions before the x-date (when the treasury is depleted and the extraordinary measures of the Treasury) diminish confidence in the governance of fiscal and of debt”.

The agency also mentioned a “constant deterioration” of governance in the last 15 years, the increase in political polarization and the repeated belligerence around the increase in the government’s debt limit, as well as the increase in the fiscal deficit and debt.

Last week, Fitch had put the US credit on watch for a possible downgrade. On Friday he said that he intends to resolve the review in the third quarter of this year.

“The coherence and credibility of economic policy, as well as the expected medium-term trajectory of public finances and debt will be key factors in our assessment.he declared.

Investors use credit rating as one of the metrics to assess the risk profiles of governments and companies. Generally, the lower a borrower’s score, the higher their financing costs.

Source: Reuters