Fitch Puts US On Negative Ratings Watch

Fitch has placed the US on negative ratings watch, as the deadline for an increase in the debt-ceiling approaches (June 1) and they see US governance as weaker than other AAA rated nations. While the ratings agency sees the probability of default as “very low”, it would reduce the US to AA- in the case that it occurs (in line with Ireland and South Korea).

• Fitch is forecasting a deficit of 6.5% of GDP in 2023 widening to 6.9% in 2024. They note that public finances in the US have “modestly underperformed expectations”.
• A deal is still expected before the end of the month and while brinkmanship in debt-ceiling negotiations is not unusual, it does increase the risks. Increased political partisanship in the US is not helping the situation.
• For the initial market reaction to the news see Risk Appetite Weakens As Fitch Places US On Negative Rating Watch and for the comments following the last Biden-McCarthy meeting see Debt: No Agreement Yet, But Talks Continue.