Debt Ceiling Standoff Fallout — Fitch Ratings Puts US AAA Rating On Negative Watch

It was Wall Street that showed the first signs of cracks on Tuesday as debt ceiling stand-off continued to drag on without any resolution. Now, as politicians on both sides appear to drag the impasse to the wire, Fitch ratings, on Wednesday, placed the ‘AAA’ Long-Term Foreign-Currency Issuer Default Rating of the United States on Rating Watch Negative.

The ratings agency said its action reflects increased political partisanship that is hindering reaching a resolution to raise or suspend the debt limit despite the fast-approaching X date – the day when the government is expected to run out of options to fund itself.

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"Fitch still expects a resolution to the debt limit before the x-date. However, we believe risks have risen that the debt limit will not be raised or suspended before the x-date and consequently that the government could begin to miss payments on some of its obligations," it said in a statement.

The agency also stated that failing to make full and timely payments on debt securities is less likely than reaching the x-date and is a very low probability event. However, it said such a failure would be a debt default under Fitch’s sovereign rating criteria and "would lead us to downgrade the sovereign IDR to Restricted Default."

Price Action: President Joe Biden's administration and Republican lawmakers continued to hint their ongoing talks on Wednesday were productive but failed to reach a decisive outcome.

U.S. markets ended in the red on Wednesday as investors continued to remain cautious about a potential default. The SPDR S&P 500 ETF Trust SPY closed 0.72% lower on Wednesday while the Invesco QQQ Trust Series 1 QQQ shed 0.51%, according to Benzinga Pro.

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