On Tuesday, Fitch Ratings announced it was accelerating its timetable for a potential U.S. credit rating downgrade, citing the brinksmanship in Washington. Fitch would become the second credit rating firm to downgrade U.S. government debt, which could have ripple effects across a range of markets.
“Political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default,” Fitch said late Tuesday. “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 the economy.”
Fitch's decision doesn't actually downgrade the United States' credit rating, but serves as a signal that it might should the political situation continue to threaten the U.S.'s ability to pay its debts. The Treasury Department says it will run out of borrowing authority on Thursday — the deadline for Congress to come to an agreement to raise the nation's debt ceiling.
"Although the Treasury would still have limited capacity to make payments after 17 October it would be exposed to volatile revenue and expenditure flows," Fitch said. "The Treasury may be unable to prioritise debt service, and it is unclear whether it even has the legal authority to do so. 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 the economy."
Toward the end of the also-contentious 2011 debt ceiling debate, Standard and Poor's downgraded the United States' long-term credit rating from 'AAA' to 'AA+'. It was the first credit rating downgrade for the U.S. in history, and remains downgraded now.
S&P earlier this year adjusted its outlook on the U.S. credit rating from "negative" to "stable," but the credit rating remains at "AA+."
Moody's threatened to downgrade the U.S. credit rating in 2011, though it never did. It also issued an early threat in 2012 for this year's budget negotiations.
Fitch, S&P and Moody's are considered the three top credit rating agencies.
Updated at 5:36 p.m.