From Fitch Ratings
Fitch Ratings’ expectation is that Congress will raise the debt ceiling and that the risk of a U.S. sovereign default remains extremely low. Nonetheless, and in line with our previous guidance, failure to raise the debt ceiling in a timely manner will prompt a formal review of the U.S. sovereign ratings.
In Fitch’s opinion, the debt ceiling is an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible.
The U.S. ‘AAA’ status is underpinned by the country’s relative economic dynamism and potential, diminishing financial sector risks, respect for the rule of law and property rights, as well as the exceptional financing flexibility that accrues from the global benchmark status of U.S. Treasury securities and the dollar. These fundamental credit strengths are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt.
In the absence of an agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current Negative Outlook on the ‘AAA’ rating is likely to be resolved with a downgrade later this year even if another debt ceiling crisis is averted.
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