LONDON (AP) — The United States could lose its top credit rating for the second time from a leading agency if there’s a delay in raising the country’s debt ceiling, Fitch Ratings warned Tuesday.
Congress has to increase the country’s debt limit, which effectively rules how much debt the U.S. can have, by the end of February or face a potential default, Fitch says.
There are fears that the debate will descend into the sort of squabbling and political brinkmanship that marked the last effort to raise the ceiling in the summer of 2011. Outgoing U.S. Treasury Secretary Timothy Geithner warned then that it had nearly reached a point where government would be unable “to meet our commitments securely.”
“The pressure on the U.S. rating, if anything, is increasing,” David Riley, managing director of Fitch Ratings’ global sovereigns division said at a London conference. “We thought the 2011 crisis was a one-off event …. if we have a repeat we will place the U.S. rating under review.”
If that happens, Riley said there was “a material risk” of the rating coming down, which could mean the U.S. would face steeper costs when it comes to servicing its debt.
If Fitch does move to downgrade the US, it will join Standard & Poor’s, which was so concerned by the dysfunctional nature of the 2011 debate that it stripped the U.S. of its triple A rating for the first time in the country’s history.
Fitch already has a negative outlook on the U.S. as the country’s debt burden has risen to around 100 percent of its annual gross domestic product, and has said it will make a decision on the rating this year, regardless of how the debt ceiling discussions pan out.
The U.S. government reached its statutory debt limit of nearly $16.4 trillion at the end of 2012 but is pursuing some extraordinary measures and can use some in-house deposits that should see it through to the end of February, according to Fitch.
Another major ratings agency, Moody’s, also has a negative view on the U.S. outlook.
Riley’s comments come just two weeks after U.S. lawmakers agreed to a budget deal with the White House that avoided the so-called fiscal cliff of automatic tax increases and spending cuts that many economists thought could plunge the U.S. economy, the world’s largest, back into recession. Relief that a deal was cobbled together, albeit at the final hour, is one of the reasons why sentiment in the financial markets has been buoyant in the first trading days of the new year. Many stock indexes around the world are trading at multi-year highs.
“The ‘fiscal cliff’ bullet was dodged …. (but it’s) a short-term patch,” said Riley.