Fitch Ratings, one of the three main credit rating agencies, issued a statement on Wednesday putting the United States’ AAA rating on “negative watch” as the country faces a potential government shutdown in the coming weeks, due to a prolonged fight over the debt ceiling.
In their statement, Fitch highlighted the political gridlock in Washington as well as a lack of agreement on a budget deal to raise the debt ceiling, saying that this could lead to a “prolonged debate over fiscal policy, increased market volatility, and heightened tension in financial markets.” They added that there was a “material risk” of a downgrade if the situation is not resolved in a “timely manner.”
Fitch’s announcement follows the other two major rating agencies – Moody’s and Standard & Poor’s – who have also issued warnings about the potential for a downgrade due to the debt ceiling dispute.
If a deal is not made and the government does shut down, it could have serious economic implications, including higher borrowing costs for the federal government, businesses, consumers and state and local governments. It could also cause economic uncertainty amongst households and businesses, further dampening economic growth and job creation.
The rating agencies have made it clear that they are watching the situation carefully, and that a resolution needs to come soon in order to avoid a downgrade. The debt ceiling deadline is set for October 17th, so it’s essential that a deal is made before then in order to keep the US’s AAA rating intact.