Fitch threatens US rating as debt talks enter final day

WITH just a day left until the US Treasury reaches the debt ceiling, the country’s politicians remained gridlocked last night, lacking a crucial deal to prevent a financial default.

Credit ratings agency Fitch placed the country’s current AAA rating on negative watch, saying that “prolonged negotiations” over the debt ceiling undermine “confidence in the role of the US dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the US”.

Fitch clarified that it still expects that there will be an agreement before the ceiling is reached tomorrow, or that “sufficient political will and capacity” will be exercised to ensure all interest payments on Treasury securities will be met.

There was no sign of progress on a political deal to resolve the crisis yesterday. Though the Republican-controlled House of Representatives was expected to vote on a bill last night, which would have raised the debt ceiling until February and reopened the government until December, the compromise position did not appear to have enough support in the legislature.

Senators Harry Reid and Mitch McConnell, leaders of the Democrats and Republicans respectively in the US Senate, may vote on a proposal today, but there would not necessarily be enough support for the peace deal in the lower house.

The major stock indexes for the US were all hit yesterday, with the Dow, Nasdaq and S&P 500 down 0.87 per cent, 0.56 per cent and 0.71 per cent respectively.

Without a deal, Dallas Federal Reserve president Richard Fisher said that he could not make an argument for the Fed to taper bond purchases at the end of this month: “This is just too tender a moment.”

As recently as the last week of September, Fisher commented publicly that the US should have begun to trim its quantitative easing programme last month, but now feels tapering in October is off the cards.

Fisher said: “Given what has happened in the marketplace, I personally would have a hard time arguing for us to dial it back.”

Fisher is the second senior US monetary policymaker to suggest openly that the debt ceiling impasse makes tapering less likely to happen soon, after James Bullard’s comments last week.