Fitch cautions that ongoing political division over debt ceiling could damage AAA credit rating.

Fitch Ratings has placed the United States’ AAA credit rating on “rating watch negative” due to the ongoing political deadlock over the debt ceiling. This news has caused concern about a possible downgrade, as negotiations between House Republicans and The White House stretch into a third week. Fitch expressed concern about brinkmanship in the debt ceiling talks caused by increasingly entrenched partisanship in policymaking.

Time is running out to strike a deal to address an impending default, as the U.S. Treasury Department could exhaust its cash to pay bills as early as next week from June 1. The United States defaulting on its debts could have disastrous economic effects at home and abroad.

Fitch, one of the three big credit rating agencies along with Moody’s and Standard & Poor’s, explained the negative rating watch “reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching x date.”

The agency said it still expects a resolution to the impasse before Treasury’s cash position and capacity for extraordinary measures are exhausted but believes there’s now a higher risk the debt limit will not be raised in time, which would see U.S. government start to miss some of its payment due dates.

Fitch also highlighted concerns over the political brinkmanship surrounding the debt ceiling, as well as the failure of U.S. authorities to effectively address medium-term fiscal challenges that could lead to rising budget deficits and a mounting debt burden. These factors indicate potential downside risks to the creditworthiness of the United States, it said.

Partisanship

A Treasury Department spokesperson responded Fitch’s warning on Wednesday night, saying it demonstrated why Congress must immediately resolve the debt limit impasse. “As Secretary Yellen has warned for months, brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the United States,” Treasury spokesperson Lily Adams said in a statement.

During a Wall Street Journal event in London, Treasury Secretary Janet Yellen, who spoke virtually, said that “it seems almost certain” the United States would default in early June. Yellen noted that the stress is already apparent in Treasury markets.

What’s at Stake?

• Disastrous economic effects at home and abroad
• Missed payment due dates
• Rising budget deficits and a mounting debt burden
• Short-term borrowing costs for taxpayers
• Threatens the credit rating of the United States

The White House press secretary Karine Jean-Pierre on Wednesday emphasized the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy.