Credit rating agency Fitch placed U.S. holdings, which remain AAA, on negative watch Tuesday, as Congressional negotiations over the federal debt ceiling stalled just two days before a Thursday deadline.
“Fitch continues to believe that an agreement will be reached to end the current political impasse and raise the U.S. debt ceiling,” the agency said in a press release. “Even if the debt limit is not raised before or shortly after 17 October, we assume there is sufficient political will and capacity to ensure that Treasury securities will continue to be honoured in full and on time.”
While Fitch said that it remained confident Congress would ultimately reach a deal to raise the debt ceiling ahead of the Oct. 17 deadline, future ratings of U.S. holdings would be dependant on the “manner and duration of the agreement and the perceived risk of a similar episode occurring in the future.”
“The prolonged negotiations over raising the debt ceiling (following the episode in August 2011) risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S,” the agency added. “This “faith” is a key reason why the U.S. ‘AAA’ rating can tolerate a substantially higher level of public debt than other ‘AAA’ sovereigns.”