Threat of US credit downgrade looms over debt ceiling talks

Rep. Pete Aguilar, D-Calif., right, speaks as Rep. Katherine Clark, D-Mass., left, listens during a news conference Wednesday, May 24, 2023, on Capitol Hill in Washington. WASHINGTON — — With one of three major rating agencies warning that America's AAA credit is at risk, the stakes are growing inOn Wednesday night, the rating agency Fitch put the nation's credit onwhich amounts to a warning that it might downgrade the U.S. credit as a result of the impasse.

At the same time, Fitch characterized the likelihood that the Treasury will actually default on its debts as “a low probability event." Further downgrades on U.S. debt could make it harder for pension funds and other institutional investors to hold the bonds, because many have rules limiting their ability to invest in lower-rated debt. In 2011, after S&P's downgrade, the Federal Reserve and other banking regulators issued a statement stipulating that Treasury securities would still be considered ultra-safe assets for banks to hold in reserve.

In its statement Wednesday, Fitch warned: “The brinkmanship over the debt ceiling, failure of the U.S. authorities to meaningfully tackle medium-term fiscal challenges that will lead to rising budget deficits and a growing debt burden signal downside risks to U.S. creditworthiness.’’

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