The U.S. has a perfect credit rating from Fitch Ratings, one of three major agencies that grade public and private debt. But James McCormack, Fitch’s global head of sovereign ratings, told CNN Monday that the country’s credit rating may be at risk as Congress battles over raising the debt ceiling, even if lawmakers come to an agreement that avoids a default.
McCormack warned that “repeated episodes” of conflict over raising the debt ceiling “chip away” at the nation’s status as the dominant player in the global economy, raising questions about the level of risk inherent in U.S. debt instruments, which have long been as close to risk-free as investors can get.
“When investors have to think about that, that’s not what you’re looking for in a risk-free asset, right?” McCormack said, referring to the possibility that the U.S. could fail to meet all of its obligations in full and on time. Even if that outcome is avoided, a contentious lead-up to an eventual agreement this summer could cause global financial markets to react negatively, threatening the status of both U.S. debt and the dollar – a course of events that could result in a credit downgrade by Fitch.
McCormack made it clear that the ratings agency takes the burgeoning standoff very seriously, even if the operating assumption is still that an agreement will be reached. “We are more concerned this time around,” he said, citing the heightened degree of polarization in Washington. “You’re playing with live ammunition here,” he added. “This is an extremely dangerous situation. There is a lot at stake.”