US warned it could lose AAA credit rating if debt ceiling deal is not reached this week
Kevin McCarthy shares solutions for growing debt
The US could lose its crucial AAA credit rating if a debt ceiling deal is not reached by the end of next week, it has been warned. White House negotiators and House Republicans are speeding towards a June deadline without a deal, which would see the US default on its debt.
Should the deadline pass without a deal, the US would be unable to pay creditors leading to potentially catastrophic economic consequences the world over.
The US currently holds the highest rating for creditworthiness, AAA, but this could be downgraded in the event of a deal not being reached.
Credit rating agency Fitch said: "The Rating Watch Negative reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date."
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Treasury Secretary Janet Yellen has said that the deadline to agree a deal is June 1, and Fitch added that it still believes Democrats and Republicans will be able to strike a deal.
But Fitch is warning that the chances of a default are rising, leading to increased fears of the standoff ending with no deal being reached.
The firm continued: "Fitch still expects a resolution to the debt limit before the x-date. However, we believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations,” the agency said.
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Fitch cautioned that “sizable payments” on the US's debt are due between June 1-2, setting the x-date (the day a default would occur) as the beginning of June.
The ratings agency said: "The failure to reach a deal to raise or suspend the debt limit by the x-date would be a negative signal of the broader governance and willingness of the US to honor its obligations in a timely fashion, which would be unlikely to be consistent with a ‘AAA’ rating, in Fitch’s view."
It added: "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 US creditworthiness."
House Speaker Kevin McCarthy has said that tensions between negotiators are reaching "breaking point" as the US hurtles towards that x-date.