“Fitch wants to see progress on a long-term deficit deal and wants to see it this year,” said Anthony Valeri, investment strategist at LPL Financial. “This is probably another brick in the wall of a downgrade of the U.S.”
U.S. lawmakers must make credible progress this year on a long-term deficit-reduction strategy or risk losing Fitch Ratings’ top AAA grade on U.S. government debt, Fitch warned Wednesday.
Fitch said it would not immediately cut its rating if Congress fails to stop $85 billion in automatic spending cuts from taking effect Friday, or even if there’s a partial government shutdown later.
But a repeat of the 2011 crisis over raising the debt ceiling also could provoke a downgrade, Fitch said. The U.S. is scheduled to reach the current debt ceiling in mid-May, but the Treasury Department could take measures to extend its borrowing authority for another two or three months.
A downgrade by Fitch would make two out of three major credit rating agencies to knock U.S. off the top rung of the most credit-worthy nations. Standard & Poor’s cut its AAA rating on U.S. debt during Washington’s 2011 battle over raising the debt ceiling. Moody’s, the third agency, has its top Aaa rating for the U.S. under review.
Debt ratings are used by Wall Street to help set bond prices and interest rates. A credit downgrade by all three agencies could lead to higher borrowing costs for the U.S. over time.