Debt Ceiling Battle Could Downgrade U.S. Credit Rating
Fitch Ratings, one of the big three ratings firms, said Tuesday a fight over the debt ceiling could lead to a downgrade in the U.S. credit rating.
Fitch said in a statement that a “failure to raise the debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings.”
Fitch went on to say, “A repeat of the August 2011 ‘debt ceiling crisis’ would oblige Fitch to review its current assessment of the reliability and predictability of the institutional policy framework and prospects for reaching agreement on a credible medium-term deficit reduction plan.”
The U.S. government could be unable pay its bills by late February if the fight over debt ceiling is not resolved and that would increase the chance of a default by the United States.
Republicans are arguing that raising the debt ceiling should be tied to reducing the nation’s $16 trillion debt.
“In Fitch’s opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline,” the company said.
The three national credit rating agencies–Fitch, Standard and Poor’s (S&P), and Moody’s Investors Service–measure the creditworthiness of companies and governments. The higher the rating, the less risky the investment and the more likely the bank or government will repay the loan. Credit downgrades are similar to a drop in credit scores and indicate a higher risk of default on loans. This can lead to higher interest rates for banks and the government.