Negative Watch To Stay On US 'AAA' Rating Until Third Quarter Despite Debt Deal - Fitch

WASHINGTON (UrduPoint News / Sputnik - 02nd June, 2023) Fitch Ratings said in a statement on Friday that it will maintain a negative watch on United States' AAA sovereign rating until the third quarter of this year, as it studies the fallout from events leading to the higher debt ceiling agreed between President Joe Biden and his Republican rivals.

Fitch acknowledged that the deal to suspend the previous debt ceiling of $31.4 trillion had passed the US Senate and only needed President Joe Biden's signature to become law but said it would maintain the negative watch on the United States rating.

"Fitch Ratings maintains the Rating Watch Negative (RWN) on the US rating, as we consider the full implications of the most recent brinkmanship episode and the outlook for medium-term fiscal and debt trajectories. Fitch intends to resolve the Negative Watch on the U.S.'s 'AAA' rating in 3Q23," the statement said.

Fitch cited a legacy of troubling governance over the past decade-and-a-half as one of the reasons for its decision, the statement said.

"There has been a steady deterioration in governance over the last 15 years, with increased political polarization and partisanship as witnessed by the contested 2020 election, repeated brinkmanship over the debt limit and failure to tackle fiscal challenges from growing mandatory spending has led to rising fiscal deficits and debt burden," the statement said.

Fitch blamed its weak confidence in the governing process on the cantankerous negotiations between Democrats aligned to Biden and Republicans led by House of Representatives Speaker Kevin McCarthy prior to the debt deal.

"Reaching an agreement despite heated political partisanship while reducing fiscal deficits modestly over the next two years are positive considerations," it said. "However, Fitch believes that repeated political standoffs around the debt-limit and last-minute suspensions before the x-date (when the Treasury's cash position and extraordinary measures are exhausted) lowers confidence in governance on fiscal and debt matters."

Fitch said it believed the US rating was supported by exceptional strengths, including the size of the economy, high GDP per capita and a dynamic business environment. The US Dollar being the world's preeminent reserve Currency also gave the government unparalleled financing flexibility, although some of these strengths could be eroded over time by governance shortcomings, it added.