Yesterday afternoon, Treasury Secretary Jack Lew told Congress that the U.S. would hit the debt ceiling in mid-October.
So, what does this due to the credibility of the U.S. in the eyes of its creditors.
Well, in the wake of the 2011 debt ceiling debate, the U.S. saw its AAA credit rating stripped by S&P. It's worth noting, however, that interest rates actually trended lower for two years.
In a note to clients on August 16, Goldman Sachs' Alec Phillips discussed what's going on at the credit rating agencies:
Standard & Poor’s and Moody’s revised their outlook on the US rating from negative to stable earlier this summer, with AA+ and AAA ratings respectively.3 Given this, it seems unlikely that the debt limit debate would trigger negative ratings action from either agency unless Congress actually missed the deadline.
Fitch has indicated that the projected level of US debt is slightly below the level it views as inconsistent, so a downgrade from them on fiscal fundamentals appears unlikely.4 However, for now Fitch maintains a negative outlook on the rating, and noted in June that “failure to raise the federal debt ceiling in a timely manner (ie. several days prior to when the Treasury will have exhausted extraordinary measures and cash reserves) will prompt a formal review of the U.S. sovereign ratings and likely lead to a downgrade.” Fitch’s review looks likely to be completed before year end, probably after the upcoming fiscal deadlines have passed.
Here's a look at what rates did before and after the 2011 debt ceiling deadline.
Goldman Sachs Global Investment Research
Not All Fiscal Deadlines Are Created Equal
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