Fitch warns of US debt-ceiling stalemate regardless of Republican-controlled authorities

By Davide Barbuscia

NEW YORK (Reuters) – A unified authorities beneath President-elect Donald Trump is unlikely to result in a fast decision of the U.S. debt-ceiling debate given a slender Republican Home majority and continued disagreements throughout the occasion on spending insurance policies, stated scores company Fitch.

As a part of a 2023 finances settlement, Congress quickly lifted the debt ceiling till Jan. 1, 2025. Whereas the U.S. Treasury can proceed overlaying its obligations for a number of extra months, Congress should revisit the difficulty this 12 months to keep away from a debt default.

Fitch, which downgraded the U.S. authorities credit score profile in 2023 after a debt-ceiling disaster, stated on Tuesday it was skeptical {that a} debt-limit suspension or enhance, in addition to different key fiscal coverage selections anticipated this 12 months, shall be applied shortly.

“The U.S. faces important fiscal coverage challenges in 2025 … We imagine it’s unlikely that these shall be resolved expeditiously due to long-standing weaknesses within the federal authorities’s budgetary course of and a slender Republican Home majority,” it stated in a press release.

Hopes that one-party management of presidency may make it simpler to agree on elevating the debt ceiling had been dented final month when Congress handed spending laws in a down-to-the-wire vote that averted a destabilizing authorities shutdown. A number of Republicans rejected Trump’s demand to make use of the invoice to carry the nation’s debt ceiling. 

The last-minute decision was in keeping with the scores company’s expectations that Congress would depend on non permanent funding measures, and demonstrated “the potential obstacles to securing agreements on fiscal measures, each inside Congress and between Congress and the President,” Fitch stated.

The price of insuring publicity to U.S. authorities debt has began to climb this week, with spreads on U.S. six-month and one-year credit score default swaps – market-based gauges of the danger of a default – widening by three and 4 foundation factors, respectively, in comparison with final week, S&P World Market Intelligence knowledge confirmed on Tuesday.

The 2023 debt-ceiling showdown spurred a selloff in shares and bonds, pushed the U.S. to the brink of default and damage the nation’s credit standing.

Fitch stated it expects U.S. policymakers to finally attain an settlement on the debt ceiling in addition to on different key fiscal coverage gadgets, such because the extension of 2017 tax cuts set to run out this 12 months.

However a still-challenging political surroundings means selections are prone to be reached on an issue-by-issue foundation, it stated, “underscoring the U.S.’ deterioration in governance on fiscal issues over latest years.”