Fitch Ratings, one of the three major credit rating agencies, has warned that the U.S. could lose its top credit rating if Congress fails to raise the debt ceiling by the end of this month. Fitch said it had placed the U.S. triple-A credit rating on “rating watch negative,” meaning a downgrade is possible within weeks.Embed from Getty Images
The debt ceiling is the legal limit on how much the federal government can borrow to pay its bills. It has been suspended since 2019, but it will be reinstated on July 31 at about $28.5 trillion, according to the Treasury Department. The Treasury has been using extraordinary measures to avoid defaulting on its obligations, but those measures will run out in August or early September.
A default would have severe consequences for the U.S. and global economy, as well as for the government’s ability to fund its operations and programs. Fitch said a failure to raise the debt limit would erode the U.S. creditworthiness and undermine its role as a global reserve currency.Embed from Getty Images
The White House and congressional leaders have been negotiating a bipartisan infrastructure package that could include a debt ceiling increase, but they have not reached a deal yet. Republicans have said they will not support raising the debt limit without spending cuts or other reforms.
Some analysts have suggested that President Biden could use executive action to avoid a default, such as invoking the 14th Amendment of the Constitution, which states that the validity of the public debt shall not be questioned. However, the legality and effectiveness of such a move are uncertain and could face legal challenges.
The U.S. has never defaulted on its debt before, but it came close in 2011 and 2013, when political gridlock over the debt ceiling led to rating downgrades by Standard & Poor’s and Fitch, respectively. Moody’s, the third major rating agency, still maintains a stable outlook for the U.S. credit rating.
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