MNI POLITICAL RISK - Fitch Downgrade May Impact FY24 Battle

Democrats and Republicans yesterday traded accusations after a decision by Fitch Ratings to downgrade the US' sovereign credit rating by one notch to AA+, Congressional Democrats claiming the downgrade was a result of a Republican culture of brinksmanship over US debt, Republicans conversely arguing that the downgrade reflects Democrat profligacy.

• With 59 days to go until government funding runs out, the Fitch decision may fortify a position among Conservative Republicans that FY2025 spending bills must be marked up significantly lower than spending levels dictated by the Fiscal Responsibility Act, the bill negotiated by President Biden and House Speaker Kevin McCarthy (R-CA) to raise the federal debt ceiling in return for moderate constraints on federal government spending.
• Fiscal conservatives in the GOP have publicly staked-out a rigid position on spending which directly clashes with the priorities of the Senate, with some members of the conservative Republican House Freedom Caucus appearing to threaten a government shutdown. An event which a small group of Conservative Republicans on the House Rules Committee could instigate by ‘voting down the rule’ and blocking legislation reaching the House floor.