The Ottumwa Courier

AP National

October 17, 2013

Fitch puts US credit rating on negative watch

WASHINGTON (AP) — The Fitch credit rating agency has warned that it is reviewing the U.S. government's AAA credit rating for a possible downgrade, citing the impasse in Washington that has raised the threat of a default on the nation's debt.

Fitch placed the U.S. credit rating on negative watch Tuesday, a step that would precede an actual downgrade. The agency said it expects to conclude its review within six months.

The announcement comes as House and Senate leaders face a Thursday deadline to raise the nation's $16.7 trillion borrowing limit. Fitch says it expects the debt limit to be raised soon. But it adds, "the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."

A Treasury Department spokesman said the announcement "reflects the urgency with which Congress should act to remove the threat of default hanging over the economy."

Fitch is one of the three leading U.S. credit ratings agencies, along with Standard & Poor's and Moody's Investors Service. S&P downgraded U.S. long-term debt to "AA+" in August 2011.

Fitch said that the Treasury might not be able to prioritize its interest payments on U.S. debt to avoid a default. "It is unclear whether it even has the legal authority to do so," Fitch said.

Many economists expect Treasury to prioritize its payments to stave off default. And Moody's Investors Service said in an Oct. 7 report that Treasury would continue to make interest payments after the Thursday deadline.

A credit rating is an assessment of how able a country or company is to repay the money it's borrowed. A AAA rating lets companies and governments borrow at super-low rates.

So far, most investors have remained confident in U.S. debt. Rates have risen on short-term Treasurys but not on longer-term debt, like the benchmark 10-year Treasury note. That shows that investors are continuing to buy that debt. The rate on the 10-year note is important because it affects rates on mortgages and many other loans.

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