WASHINGTON – Fitch Ratings said on Friday it has placed 11 US credit-linked notes on a “Rating Watch Negative”, citing growing risks that the government administration could begin to default on payments as the Biden administration remains locked in a political standoff with its rivals in raising the nation’s debt ceiling.
“Fitch still expects a resolution to the debt limit before the x-date,” the rating agency said of the June 5 deadline that US Treasury Secretary Janet Yellen has given as the last day that the government will be able to pay for its obligations without default.
Despite its optimism that the administration will resolve the crisis in time, Fitch said it believed “risks have risen that the debt limit will not be raised or suspended before the x-date and consequently … the government could begin to miss payments on some of its obligations.”
Thus, the rating agency said it had placed 11 credit-linked notes, or CLNS, on a negative rating watch. “The CLN ratings are directly dependent on the US sovereign rating, Fannie Mae or Freddie Mac, and will be downgraded if the ratings are downgraded,” Fitch added.
Yellen told Congress in a letter on Friday that based on most recent data, the Treasury will be unable to meet its obligations if the nation’s debt limit, currently standing at US$31.4 trillion, is not raised by June 5.
Prior to this, the Treasury secretary had cited June 1 as the date of likely default without a higher debt ceiling.
President Joe Biden and his Democratic allies have negotiated without success for weeks with Republican congressional leader Kevin McCarthy, who’s also Speaker of the US House of Representatives, for a new debt deal for the country.
McCarthy said on Wednesday he and other Republicans were still “far apart” from the Democrats on various issues, though both he and Biden have repeatedly stressed that “default is not an option”.
At the crux of the disagreement is how much the government should — or should not — spend next year. While any deal reached now will only cover 2023 obligations, the Republicans are casting the ball forward to tie down federal commitments for 2024 as well. With legacy US debt already at US$21.5 million and growing each year, the Republicans say the country cannot continue with Democrats’ overspending.
House Republicans passed a plan last month to raise the debt ceiling in exchange for cuts to government spending, but Biden and Senate Majority Leader Chuck Schumer quickly dismissed the proposal.
Democrats, on their part, are seething at Republicans’ refusal to raise taxes on the rich — a privileged group that Biden says has never paid its fair share of the country’s revenue — and seeking increases in the budget for defense — a favorite political play for the Republicans, which have traditionally enjoyed strong support from military and other uniformed personnel. – Bernama