Downgrade fears as US budget talks fall through

Fitch could downgrade the US from its triple A rating as a collapse in political negotiations made it more likely the country will not resolve its budget dispute by tomorrow’s deadline.

Talks between the Democrats and the Republican party, which has the majority in the Senate, broke down as a plan to lift the debt ceiling until February was abandoned.

The development prompted Fitch to place the nation’s triple A status on negative watch, two years after another ratings agency, Standard & Poor’s downgraded the US to an AA+ rating.

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“The repeated brinkmanship over raising the debt ceiling also dents confidence in the effectiveness of the US government and political institutions, and in the coherence and credibility of economic policy. It will also have some detrimental effect on the US economy,” Fitch said.

One-month Treasury bills maturing at the end of the month rose 21 basis points yesterday as investors became jittery about the breakdown in negotiations.

If the budget is not agreed by the end of Thursday, the US may have to default as it will not have the cash to pay its creditors.