Fitch says it will downgrade the US from AAA to B+ if it does not increase the maximum amount it can borrow by August 2 and fails to make its first debt repayment after that date.
The US hit its so-called debt ceiling again earlier this year, but without raising it according to normal policy. Clashes between Democrats and Republicans have hindered agreement on the country’s deficit.
Fitch expects the country’s politicians to come to an agreement and enable the US to meet its obligations. However, it has published a note to warn of a sharp downgrade if the agreement does not materialise.
The only other time Fitch has threatened such a move was in November 1995, when Bill Clinton, the Democrat president, clashed with congressional Republicans on passing the US budget and raising the maximum amount the US could borrow.
It later removed the threat after the US agreed to raise the so-called debt ceiling on March 29 2006.
Timothy Geithner, the Treasury secretary, says the US only has sufficient resources to meet its obligations without borrowing more money until August 2.
If the US has not raised its debt ceiling by this date, Fitch says it will put the US’s AAA rating on negative watch.
If the country fails to meet its first subsequent debt repayment in full on August 4, Fitch says it will downgrade the country from AAA to B+.
Fitch says it will place the country into restricted default if it fails to honour additional obligations on August 15.
If the US resumes its debt repayments following the downgrade, Fitch says it will then debate what the most suitable credit rating for it would be, depending on its subsequent behaviour.