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August 24, 2017 at 01:24 PM
Two bond rating agencies are warning Congress about the negative implications of failing to raise the debt ceiling, which will be reached sometime around Sept. 30, when Congress also has to set spending levels for the next fiscal year or risk a government shutdown.
(Related: Bond Experts Warn of Danger of Debt Ceiling ‘Turmoil’)
Complicating matters are threats by President Donald Trump to shut down the government if Congress doesn’t include in its spending measure money to pay for a border wall with Mexico.
(Related: Inaction in Washington Weighing on Economy: S&P)
Fitch Ratings is taking the more dramatic stance on the debt ceiling, noting that if it’s “not raised in a timely manner prior to the so-called ‘x date’” — the date by which the federal government would have to prioritize debt service payments over other obligations — it would review the sovereign rating of the U.S., “with potentially negative implications.”
Moody’s says such prioritization “would not affect the U.S. sovereign rating because they only the risk of default and loss on government debt, not the risk of a delayed payment.” But Moody’s notes that such a delay would not be without cost.
“Without authorization to increase borrowing, the government would have to delay or reduce 14% of total spending,” which would result in shutting down “some government operations.” If a debt payment was missed, however, that would have negative rating implications, according to Moody’s.
