fitch leaves in "negative vigilance" US sovereign note

Fitch said it would maintain the rating “while we consider all the implications of the latest bout of reckless policy and the outlook for medium-term debt and fiscal trajectories.”

The US Senate on Thursday approved a bipartisan bill backed by President Joe Biden that raises the public debt ceiling to $31.4 trillion after months of wrangling between Democrats and Republicans.

“Reaching an agreement despite heated political partisanship and modestly reducing fiscal deficits over the next two years are positive considerations,” Fitch said in a statement.

“However, Fitch believes that the repeated political clashes around the debt limit and the last-minute suspensions before the date (when the treasury is depleted and the extraordinary measures of the Treasury) diminish confidence in the governance of fiscal and of debt”.

The agency also cited a “steady deterioration” in governance over the past 15 years, increasing political polarization and repeated belligerence around raising the government’s debt limit, as well as rising fiscal deficits and debt. .

Last week, Fitch had put the US credit on watch for a possible downgrade. On Friday he said that he intends to resolve the review in the third quarter of this year.

“The coherence and credibility of economic policy, as well as the expected medium-term trajectory of public finances and debt will be key factors in our assessment,” he said.

Investors use credit rating as one of the metrics to assess the risk profiles of governments and companies. Generally, the lower a borrower’s score, the higher their financing costs.