Fitch warns it could still cut America’s credit rating despite debt ceiling resolution

CNN: Fitch Ratings is keeping the United States on watch for a potential credit rating downgrade even after Congress passed a last-minute bill to avert a disastrous default. 
In its first statement since the Senate passed the debt ceiling legislation Thursday night, Fitch Ratings on Friday said it is keeping the United States on rating watch negative and plans to make a decision on a potential downgrade by the end of September. 

Although the resolution to the debt ceiling fight is a “positive,” Fitch expressed deep concern about the recurring brinksmanship and worsening polarization in Washington. 

“Fitch believes that repeated political standoffs around the debt-limit and last-minute suspensions before the X-date (when the Treasury’s cash position and extraordinary measures are exhausted) lowers confidence in governance on fiscal and debt matters,” the ratings company said in a statement. 
That reasoning is similar to the rationale behind the downgrade by S&P in 2011 – an unprecedented step that occurred after Congress agreed to raise the debt ceiling. 

Fitch argued on Friday there has been a “steady deterioration in governance over the last 15 years.” The firm cited “increased political polarisation and partisanship as witnessed by the contested 2020 election, 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.”

In an email to CNN, Richard Francis, senior director of sovereign ratings at Fitch, said “governance is generally weaker” in the United States than other AAA-rated nations. But Francis said that is balanced by unique strengths, including the global role of the US dollar. 
A credit rating downgrade would raise the government’s borrowing costs, forcing Washington to spend more money on interest and less on education, healthcare, defense and other priorities. 

Fitch, one of the three major ratings companies, put the United States on watch for a potential downgrade last week before House Republicans and President Joe Biden reached a compromise to raise the debt ceiling. The Congressional Budget Office estimates the agreement will provide an estimated savings of US$ 1.5 trillion over the next decade.
Fitch said it plans to resolve the negative watch in the third quarter. It will consider the “full implications of the most recent brinksmanship episode” as well as the outlook for the medium-term trajectory for the budget and debt.