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US under Trump Series: Fitch warns on US credit rating over debt ceiling

The US President Donald Trump has brought the debt-ceiling debate at the central stage when he mentioned at his rally in Phoenix, Arizona that is administration is ready for a showdown even with government closing down to secure funding for the much-promised border wall along the Southern border between the United States and Mexico.

The financial markets declined after his comments, while the US Senate majority leader Mitch McConnell said that there is zero chance that the debt ceiling will not be raised. Treasury Secretary Steven Mnuchin has urged Congress to pass the debt ceiling at the earliest. According to him, the government can remain funded until the end of September.

Now, the credit rating agency Fitch has warned on Wednesday that United States’ prized AAA rating might come under review if the debt ceiling is not raised in a timely manner. Democrats’ strong opposition to Trump might lead to a massive debacle this year over the debt ceiling. In a previous such debacle back in 2011, credit rating agency Standard & Poor downgraded the United States from AAA to AA.

In a note, Fitch analysts wrote,

“If the debt limit is not raised in a timely manner prior to the so-called ‘x date’ Fitch would review the US sovereign rating, with potentially negative implications…..Brinkmanship over the debt limit could ultimately have rating consequences, as failure to raise it would jeopardize the Treasury’s ability to meet debt service and other obligations….The economic impact of stopping other spending to prioritize debt repayment, and potential damage to investor confidence in the full faith and credit of the US, which enables its ‘AAA’ rating to tolerate such high public debt, would be negative for US sovereign creditworthiness. The debt-limit decision is just one of two major items that Congress must move on in the coming weeks — the other is spending levels for fiscal year 2018 to avert a possible government shutdown. Both measures “will demonstrate (lawmakers’) capacity for coherent fiscal policymaking and cooperation….A government shutdown would not have a direct impact on the US’s ‘AAA’ rating, but it would highlight how political divisions pose challenges to the budgetary process.”

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