Credit rating agency Fitch puts U.S. AAA rating on watch. Here’s what that means.

Washington leaders work to prevent debt defaults

Washington leaders are struggling to prevent an unprecedented debt default.


Credit bureau Fitch Ratings said the U.S.’s AAA rating – the highest available – is at risk because of “excessive debt flaring,” which raises the risk that the nation will default on some of its debt and other obligations. can do

Late Wednesday, Fitch said it was moving the U.S. to “rating watch negative” because of growing risks that the nation will default, though it added that it “still expects x-date Debt ceiling resolution is expected before . The so-called x-date is the day when the Treasury will run out of money to pay its bills, and is estimated by Treasury Secretary Janet Yellen. Will arrive on June 1st..

What does “Rating Watch Negative” mean?

That means Fitch is watching closely. Debt ceiling negotiations And it believes it may be necessary to downgrade the AAA rating currently held by U.S. debt.

“We believe risks have increased that the debt ceiling will not be raised or suspended before the X-date and that the government may begin to miss payments on some of its obligations as a result,” Fitch said in the note. wrote

It added, “Debt overhang, the failure of US authorities to meaningfully address medium-term fiscal challenges that lead to widening budget deficits and mounting debt burdens, undermines US credibility.” points to the dangers of doing so.”

Why is AAA rating important?

The AAA rating is the highest rating of a country’s creditworthiness, indicating that the country has the lowest expectation of default. According to Fitch, the AAA rating is “given only in cases of exceptionally strong ability to repay financial commitments.”

This matters because ratings affect investor expectations. With a AAA rating, investors are assured that there is little risk in buying bonds issued by that country. But lower ratings indicate higher risk, which means nations with lower credit scores may need to pay higher interest rates to convince investors to buy their debt. This, in turn, increases a nation’s cost of issuing debt.

What does the White House say?

“This is further evidence that default is not an option and that all responsible lawmakers understand that. It reinforces the need for Congress to reach a reasonable, bipartisan agreement to prevent default,” a White House spokesman said. be approved soon,” a White House spokesman said.

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