Failure to raise the debt ceiling within a "timely" manner would see the United States' sovereign ratings put under formal review with "highly uncertain" consequences, rating agency Fitch warned U.S. policymakers Tuesday.
In a statement Fitch said the debt ceiling was "an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible."
Read more:( US Default Should Be 'Unthinkable': Larry Summers)
Fitch warned that while the current Negative Outlook on the triple-A rating would likely be resolved, the absence of a credible medium term deficit reduction plan meant a downgrade later this year is likely "even if another debt ceiling crisis is averted."
It added that the U.S.'s triple-A rating was "underpinned by the country's relative economic dynamism and potential, diminishing financial sector risks, respect for the rule of law and property rights, as well as the exceptional financing flexibility that accrues from the global benchmark status of U.S. Treasury securities and the dollar" – all of which was now threatened by the looming debt ceiling.