WASHINGTON — The United States could be slapped with another credit downgrade this year from a major rating agency if there is a delay in raising its statutory borrowing limit or if lawmakers and the administration can’t agree on a credible deficit reduction package.
Fitch Ratings, one of three major credit rating firms closely monitoring the fiscal negotiations in Washington, warned lawmakers about a “failure to raise the debt ceiling in a timely manner” in a report Tuesday.
The rating agency said even if the ceiling is raised, it could still downgrade U.S. debt later this year if there is no deficit reduction plan.
“In the absence of an agreed and credible medium-term deficit reduction plan that would be consistent with sustaining the economic recovery and restoring confidence in the long-run sustainability of U.S. public finances, the current Negative Outlook on the ‘AAA’ rating is likely to be resolved with a downgrade later this year even if another debt ceiling crisis is averted,” the rating agency said.
The U.S. officially hit the $16.4 trillion debt ceiling on Dec. 31, 2012. But the Treasury Department began taking extraordinary measures to create $200 billion of headroom under the limit, including suspending the sale of State and Local Government Series securities for muni issuers.
Analysts predict the federal government will exhaust all of its borrowing authority and no longer have sufficient funds to pay its nearly 80 million monthly bills on time between February 15 and March 1.
If Congress doesn’t raise the nation’s debt ceiling by March 1, the U.S. could face a potential default, administration officials have warned.
“A repeat of the August 2011 ‘debt ceiling crisis’ would oblige Fitch to review its current assessment of the reliability and predictability of the institutional policy framework and prospects for reaching agreement on a credible medium-term deficit reduction plan,” the rating agency said.
Additionally, Fitch said that the debt ceiling is an “ineffective and potentially dangerous mechanism for enforcing fiscal discipline.”
If Fitch downgrades the U.S., it will join Standard & Poor’s who stripped the U.S. of it’s sterling rating in 2011, for the first time in history.