Just as it did earlier in the Obama Administration, partisan-based political gridlock on the part of the U.S. Congress has caught the ire of at last one of the three major credit ratings. The continued fighting that led to the government shutdown and a tight window to raise the debt ceiling could result in a downgrade to the United States’ pristine credit ratings for the second time since 2011.
Fitch Ratings essentially warned Congress Tuesday by putting the U.S.’ longer-term foreign and local currency issuer default ratings, as well as all sovereign debt securities, into the “rating watch negative” category. And a deal that pushes the debate off until mid-February likely won’t do much to reduce the ire. Though noting the economy’s resilience, its standing on the world stage and ability to absorb shocks, Fitch predicted that continued delays in raising the debt ceiling could further “dent confidence in the effectiveness of the U.S. government” and send shockwaves throughout domestic and global markets.
“Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinksmanship and reduced financial flexibility could increase the risk of a U.S. default,” Fitch explained in a statement. “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees as well as social security payments to citizens—all of which would damage the perception of U.S. sovereign creditworthiness and economy.”
Some believe that, even with a deal this week, the dispute already has caused what are sure to be ongoing problems. “Even if one of the stop gap measures is put in place to keep the U.S. economy from falling off a cliff, there has been considerable damage done to the economy—enough to threaten the recovery and perhaps enough to throw the whole system back into recession,” said NACM Economist Chris Kuehl, PhD. Kuehl added that he believes the cost of credit borrowing will increase, regardless of the outcome in the next few days.
- Brian Shappell, CBA, CICP, NACM staff writer
More in this week’s edition of eNews, available late Thursday afternoon at www.nacm.org.