US credit rating to stay on Fitch’s ‘negative watch’ despite debt limit deal

Fitch Ratings, a prominent credit ratings agency, said Friday that it will keep the nation’s top credit rating on its “negative watch” list, after Congress succeeded in passing a bipartisan bill to raise the debt limit — but only days from a key deadline to prevent a national default.

In a note Friday afternoon, the agency said the country’s “AAA” sovereign rating is “supported by exceptional strengths,” noting the “size of the economy, high GDP per capita and dynamic business environment.”

But it also warned “repeated political standoffs” over the debt ceiling, which caps how much the debt the government can owe on to pay the country’s bills, along with “last-minute suspensions” to keep the nation from defaulting on its debt in the eleventh hour “lowers confidence in governance on fiscal and debt matters.”

President Biden is expected to sign the legislation into law Friday, capping off weeks of tense negotiations between both sides over how to address the debt limit while finding common ground on proposals to tackle the deficit. 

Absent congressional action, the Treasury warned the government risked defaulting Monday on its debt, which climbed to roughly $31.4 trillion in January. 

In addition to suspending the debt ceiling through next year, the sweeping plan also included policies that sought to impose new limits on federal spending, make changes to work requirements for certain federal assistance programs, claw back some coronavirus funding, and others. 

The Congressional Budget Office said earlier this week that the deal could reduce projected deficits by about $1.5 trillion over the next decade.

“Reaching an agreement despite heated political partisanship while reducing fiscal deficits modestly over the next two years are positive considerations,” Fitch said, but it also warned that “repeated brinkmanship over the debt limit and failure to tackle fiscal challenges from growing mandatory spending has led to rising fiscal deficits and debt burden.”

The company said it plans to resolve the “Negative Watch on the U.S.’s ‘AAA’ rating in 3Q23.”

“The coherence and credibility of policymaking, as well as the expected medium-term fiscal and debt trajectories will be key factors in our assessment,” it added.