San Francisco Frontiers - Fitch holds US rating on negative watch despite debt deal

The decision came a day after US senators voted to suspend the federal debt limit, capping weeks of fraught negotiations to eliminate the threat of a disastrous credit default just four days ahead of a deadline set by the Treasury.

Hammered out between Democratic President Joe Biden and Republican leaders, the measure passed the Senate with a comfortable majority a day after sailing through the House of Representatives.

While the resolution of the debt ceiling impasse means the US government will be able to meet its obligations, Fitch Ratings said it maintains a "Rating Watch Negative" on the United States.

This comes "as we consider the full implications of the most recent brinkmanship episode and the outlook for medium-term fiscal and debt trajectories," Fitch added in a statement.

- Lowering confidence -

The agency acknowledged positive considerations this time, such as reaching a deal despite "heated political partisanship" while reducing fiscal deficits modestly over the next two years.

But repeated political standoffs over the debt limit and last-minute suspensions as the Treasury comes close to not meeting all its obligations "lowers confidence in governance on fiscal and debt matters," Fitch said.

"In fact, there has been a steady deterioration in governance over the last 15 years, with increased political polarization and partisanship," the statement added.

Economists have warned that the country could run out of funds to pay its bills by Monday, leaving almost no room for delays in enacting the Fiscal Responsibility Act.

With its passage through the Senate, the bill now heads for Biden's desk to be signed into law.

On Friday, Fitch said that it intends to resolve the negative watch in the third quarter of 2023.

"The coherence and credibility of policymaking, as well as the expected medium-term fiscal and debt trajectories will be key factors in our assessment," Fitch said.

The lifting of the so-called debt ceiling -- a limit on government borrowing to pay for bills already incurred -- is often routine.

But raising the borrowing limit, currently at $31.4 trillion, has been a contentious issue for several years, with congressional Republicans pushing for spending curbs and a smaller budget deficit in exchange for an increase.

B.Johnson--SFF