Pitch "US Credit Rating on Negative Watch"... Yellen Reaffirms Early June Deadline

WSJ 'CEO Council Summit'
Yellen, US Treasury Secretary, Participates via Video Conference

International credit rating agency Fitch assigned the United States a national credit rating of AAA, while designating it as a ‘negative watch’ due to the risk of federal government default. This means that the rating could be downgraded depending on the progress of negotiations between the U.S. government and the Republican Party regarding the debt ceiling increase. As market fears of a U.S. default grow, Janet Yellen, U.S. Treasury Secretary, has once again urged progress in negotiations, confirming the debt ceiling deadline (X-day) as June 1.

◆ Fitch places U.S. on negative watch = On the 24th (local time), Fitch decided this while reflecting "increasing political partisanship that prevents resolving issues such as raising or suspending the debt ceiling" regarding the AAA rating. Fitch stated, "We still expect an agreement on the debt ceiling before the anticipated default date, but we judge that the risk is increasing that the debt ceiling will not be raised or suspended before X-day, resulting in the federal government failing to meet some payment obligations."

This indicates that the likelihood of reaching an agreement on raising the debt ceiling by the deadline is decreasing. Fitch noted that if the debt ceiling negotiations are not concluded by the given date, the U.S. credit rating could be downgraded, although it assessed the possibility of the U.S. failing to repay its debt on time as very low.

Amid rising market tension over the possibility of a U.S. default, Secretary Yellen emphasized once again that the negotiation deadline is approaching. At the ‘CEO Council Summit’ hosted by The Wall Street Journal (WSJ) on the same day, she said, "It is difficult to say exactly when (cash and other resources) will be depleted," but maintained the existing position that "early June is the default deadline. We will soon provide Congress with further updates on the financial status."

She added, "It seems almost certain that we will not get past early June," and reiterated, "We must not allow the U.S. to go into default."

Janet Yellen, U.S. Secretary of the Treasury.
Photo by AP Yonhap News

◆ Negotiations are still ongoing = The negotiating parties dismiss the possibility of default. Republican Kevin McCarthy, Speaker of the House, appeared on CNN that day and evaluated that negotiations with the White House remain productive.

However, he firmly maintained his previous stance that large-scale government spending cuts are a prerequisite for raising the debt ceiling, stating, "We need to cut spending more than last year." When asked how much more needs to be cut, he replied, "That is part of the negotiation. The Democrats don’t want to spend less; they want to spend more," blaming the Democrats.

Earlier, the third meeting between President Joe Biden and Speaker McCarthy on the 22nd ended without significant results. Since then, the working-level negotiation teams from both sides have continued discussions daily, but as no solution has been found, concerns about default are growing. Speaker McCarthy added that he has not had separate talks with President Biden since their third meeting.

Previously, The Washington Post (WP) outlined seven scenarios in the event of a default, including a stock market crash, sudden recession, unemployment, difficulties in paying Social Security and Medicare, a sharp rise in U.S. borrowing costs, economic repercussions spreading to countries holding U.S. Treasury bonds worldwide, and weakening of the U.S. dollar’s status.

This content was produced with the assistance of AI translation services.