U.S. AAA Credit Rating Placed On Negative Watch As Debt-Ceiling Standoff Risks Default

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Fitch Ratings placed the United States’ AAA credit rating on negative watch, citing the risk of a sovereign default as debt-ceiling talks near the early June deadline.

“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 (when the U.S. Treasury exhausts its cash position and capacity for extraordinary measures without incurring new debt),” Fitch said.

The credit ratings agency 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.”

More broadly, “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 warned.

Debt-Ceiling Talks Continue

On Wednesday, negotiators for the White House and House Republicans continued debt-ceiling talks. A default looms in early June without a deal to raise the debt limit.

House Speaker Kevin McCarthy said there is still “time” for a debt-ceiling deal.

The odds of a U.S. default are “around 25% and rising,” JPMorgan Chase chief U.S. economist Michael Feroli wrote in a note to clients Wednesday.

Dow futures fell slightly on the Fitch warning. Tech futures jumped on blowout Nvidia (NVDA) earnings.


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