Last Updated: Monday, August 1, 13:51 BST
Late on Sunday evening, U.S. President Barack Obama announced that the Democrats and Republicans had reached an agreement to lift the debt ceiling, commit to a long-term plan reducing the budget deficit and ultimately avoid the U.S. defaulting on its sovereign debt. The plan must pass a vote in both chambers of the U.S. Congress and decision-makers are expected to cast their final ballots on Monday, just a day before the August 2 deadline.
The details of the plan and its progress in the halls of Capitol Hill are still emerging. "It will allow us to avoid default," said the President late on Sunday evening. Republican and Democrat senators, including House Speaker John Boehner, have spoken in favour of the proposed plan and committed to propel an affirmative vote in their respective caucuses.
As the last-minute deal is presented for debate and voting on the floors of the Senate and the House of Representatives, we take a look at Morningstar and other investment experts’ views on the impact of the U.S. debt debacle and a potential credit rating downgrade.
Morningstar’s View:
U.S. Downgrade Inevitable: Francisco Torralba, economist with Morningstar Investment Management, thinks the United States will lose its AAA credit rating regardless of what Congress does in the coming days.
US downgrade a matter of time? Unless its politicians cobble together a credible plan to boost savings, U.S. debt is on track for a ratings downgrade, commented Jeffrey Hutton, a contributor for Morningstar Australia
Debt Ceiling Uncertainty Looms Large: No one knows for sure what a sovereign default would mean for the economy, but tail risks abound for investors, says Morningstar’s Jeremy Glaser in his weekly bearish market commentary.
Can Congress Beat the Clock? We don’t believe Washington will allow a default but it is likely that at least one credit rating agency will pull the trigger on a U.S. downgrade, Morningstar’s senior securities analyst Dave Sekera said early last week
No Winners in U.S. Default It's hard to find an investment that is going to thrive following a U.S. sovereign debt default, says Morningstar's Paul Justice.
American Century Investments
Why We Think the U.S. Won’t Default on Its Debt A debt ceiling extension agreement will be reached and even if it doesn’t happen immediately, the U.S. government has sufficient revenues to meet its debt payments to investors—it’s other government payments that will be cut or delayed.
BlackRock
U.S. Fiscal Policy a Risk But an Actual Default is Unthinkable The possibility of an outright default is extremely low and we are expecting to see some sort of short-term debt ceiling extension
Charles Schwab
On Your Mind: The Debt Ceiling, US Credit Rating and Potential Default We are disappointed in the continued inability of Washington to resolve the current short- and long-term debt issues.
Fidelity
Debt Prioritisation: A Risky Option Though there may be good intentions behind calls for “debt prioritisation,” they do not justify the risk of a detrimental impact on GDP, a negative reaction by major Treasury holders and an increased likelihood of default
Merk Investments
Debt Ceiling – What Now? It seems no compromise is possible on the conflict over taxes, says former CEO of the Federal Reserve Bank of St. Louis William Poole
Northern Trust
Understanding the U.S. Debt Ceiling Situation A look at the expectations and potential outcomes for the current debt ceiling situation.
Zacks Investment Research
AAA Rating and the Relativity of Global Economies Exploring how the world works from a trader and risk-taking investor's point of view
