Fitch, the credit rating agency, put the U.S. triple-A rating on watch for possible downgrade as talks to resolve a looming fiscal crisis dragged on without a deal nearly a week before a possible default.
In a statement late Wednesday, Fitch said the move reflected “increased political partisanship that stands in the way of reaching a resolution” on the debt ceiling. While Fitch still expected a deal to be struck, he said risks had increased that the government could miss payments on some of its obligations.
“The impasse over the debt ceiling, the failure of U.S. authorities to meaningfully address medium-term fiscal challenges that will lead to growing budget deficits and a growing debt burden signal risks to the decline for the solvency of the United States,” he said.
Fitch’s warning came after White House and Republican negotiators met for the latest round of talks to hammer out a deal that would raise the country’s borrowing limit before it runs out of money. money to pay all his bills as of June 1st.
The US Treasury said in response that the warning “underscores the need for prompt bipartisan action by Congress to raise or suspend the debt ceiling and avoid a manufactured crisis” for the economy.
“As [US Treasury secretary Janet] Yellen has warned for months that the debt limit is causing serious harm to American businesses and families, increasing short-term borrowing costs for taxpayers, and threatening America’s credit rating,” said one. Treasury spokesperson.
But Kevin McCarthy, the Republican Speaker of the House of Representatives, said investors had nothing to fear from the standoff.
“We work night and day. I wouldn’t, if I was in the markets. . . be afraid of anything in this process. I wouldn’t scare the markets in any form,” McCarthy told Fox Business. “We will reach an agreement when we have it, worthy of the American public, and there should be no fear.”
Earlier today, Yellen reiterated his forecast that June 1 was the critical deadline. Speaking at an event with the Wall Street Journal, she said uncertainty over the debt ceiling was already causing “some stress in Financial markets“, adding that Treasury bills maturing in early to mid-June “were trading at . . . significantly higher rates.
Investors avoided bonds maturing in early June, which caused the price of these securities to fall considerably. In early May, the Treasury Department was forced to auction off the highest-yielding four-week bills on record to lure buyers.
The stress is not limited to the debt market. Stocks have fallen this week, with the blue-chip S&P 500 and the tech-heavy Nasdaq Composite both down nearly 2%.
“I think this should serve as a reminder of the importance of reaching a timely agreement,” Yellen said, warning that there could be “substantial difficulties in the financial markets” even in the run-up to a possible agreement. .
McCarthy offered only a slightly improved assessment of the talks on Wednesday afternoon, saying they had “improved a bit” but a gap remained on spending levels. Republicans have demanded deep discretionary spending cuts, while the White House has proposed freezing spending at existing levels next year.
The White House did not comment on the outcome of Wednesday’s talks, but Karine Jean-Pierre, the press secretary, told reporters earlier that President Joe Biden still hoped for a bipartisan agreement.
In the absence of a deal, the House told lawmakers they could return to their districts for the upcoming Memorial Day weekend, but warned them they should be ready to return to Washington at short notice. .
McCarthy said the House would need 72 hours to consider the legislation before a vote, after which it would move to the Senate. Even though Senate leaders could try to speed up the legislation, it has become increasingly difficult to enact a bill before June 1, the earliest possible day for a default.
McCarthy sat down with Biden on Monday for talks the two leaders called “productive,” after the president cut short his overseas trip after the G7 meeting to travel to Washington for cap negotiations. debt. But they have not yet scheduled another in-person meeting.
Both Biden and McCarthy are under increasing pressure from the left and right flanks of their parties, respectively, to reject calls for compromise.
The more hawkish members of McCarthy’s conference dismissed fears of a default and suggested that the Treasury could simply prioritize debt payments.
But Yellen dismissed those claims on Wednesday: “Our payment systems were built to pay our bills, not to decide which bills to pay and which bills not to pay.”
“In general, prioritization is not really something operationally feasible,” she added.