Fitch Warns It Could Downgrade U.S. Credit Rating Over Political ‘Brinkmanship’

Fitch Ratings warned Wednesday that it was considering downgrading the nation's AAA credit rating, saying there's an increasing risk Congress won't reach an agreement with the White House to raise the debt ceiling before the Treasury starts to run out of cash to pay its bills.

Fitch, one of the three major credit rating companies along with Moody’s and Standard and Poor’s, cited “debt ceiling brinkmanship” and “increased political partisanship” for the change in the country’s credit rating as congressional Democrats and Republicans inch closer to the so-called X date of June 1 when the U.S. is at risk of defaulting on its debt.

Although Fitch expects an agreement before the X date, it said the risk is rising that negotiators won't get one before then.

"The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness," Fitch said.

The United States’ credit rating has not been downgraded from AAA, the highest possible rating, since 2011, when S&P downgraded the country’s credit rating from AAA to AA+, the second-highest rating.

Biden officials have been warning, with increasing levels of alarm in recent weeks, of catastrophic consequences if the U.S. defaults on its debt, which would force the nation to pay higher interest rates on its debt. Treasury Secretary Janet Yellen warned Congress in a letter Monday that a debt default would hit American families hard by raising borrowing costs and would call into question the nation's ability to defend itself.

“As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States," Treasury spokeswoman Lily Adams said in a statement late Wednesday. "Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.”

However, Fitch said in its negative rating watch announcement that the agency does not expect to further downgrade the country’s credit rating in the immediate future, even if federal legislators do not reach a deal to raise the debt ceiling in the next week.

“Fitch would expect the U.S country ceiling to remain at 'AAA' even in the scenario of a debt default,” the agency said in its announcement. “The U.S. dollar is the preeminent world's reserve currency, and we view the risk of exchange and capital controls as (trivial).”

Democratic and Republican lawmakers met for about four hours Wednesday at the White House. House Speaker Kevin McCarthy, R-California, said discussions were “going a little better” as the two parties haggle over federal spending caps and how long they will remain in place.