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Thursday, May 25, 2023

Credit Rating Agency Fitch Puts The US AAA Rating On Watch. That’s What That Means.

Washington leaders are working to prevent a debt default

Washington leaders are scrambling to prevent an unprecedented debt default


Credit ratings agency Fitch said the U.S.’s triple-A rating, the highest available, was at risk due to “debt ceiling brinkmanship,” raising the risk of default on some of the country’s debt and other obligations.

Late on Wednesday, Fitch Ratings said it was placing the U.S. on “rating watch negative” due to the increased risk of a U.S. default, although it added that it “still expects an early resolution of the debt ceiling.”The so-called date x is the day the Treasury will run out of money to pay its bills, Treasury Secretary Janet Yellen estimates Will arrive on June 1st.

What does it mean to “see negative reviews”?

That means Fitch is watching closely debt ceiling negotiations It is believed that it may be necessary to downgrade the AAA rating currently held by U.S. bonds.

“We believe risks have increased as the debt ceiling has not been raised or suspended before the 10th, so the government could start defaulting on some of its obligations,” Fitch wrote in the report.

She added, “The brinkmanship around the debt ceiling and the failure of U.S. authorities to effectively address fiscal challenges in the medium term will lead to higher budget deficits and a higher debt burden, suggesting a negative impact on U.S. credit risk.”

Why is the AAA rating important?

AAA rating is the highest rating for a state’s creditworthiness and indicates the lowest default expectation in the state. According to Fitch Ratings, AAA ratings are assigned “only when the ability to meet financial obligations is exceptionally strong.”

This is important because ratings affect investor expectations. With a triple-A rating, investors can rest assured that buying bonds issued by the country is low risk. But lower ratings indicate higher risk, meaning countries with lower credit scores may need to pay higher interest rates to convince investors to buy their debt. This in turn increases the cost of issuing debt at the state level.

What does the White House say?

A White House spokesman said: “This is further evidence that default is not an option, and all responsible lawmakers understand that. It reinforces the need for Congress to quickly pass a reasonable bipartisan agreement to prevent default.”

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