Why Fitch Put U.S. Credit Rating on Negative Watch

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Oct. 15 (Bloomberg) –- Bloomberg’s Michael McKee discusses Fitch placing the U.S. AAA credit rating on negative watch. He speaks with Alix Steel on Bloomberg Television's "Street Smart." (Source: Bloomberg)

For 20 to 1.6%. joining me right now is our chief editor michael mckee.

Why now?

It is interesting because senate majority leader harry reid suggested it might happen on the floor of the senate today and people wondered if he was kicked off -- tipped off in advance.

He had some sort of it in knowledge.

Fitch had said in june if they could not reach an agreement they might take action.

This is a warning that a downgrade my you coming.

-- this is not a warning that a downgrade might be coming.

They say although treasury would still have limited capacity, it would be exposed to volatile revenue and expenditure.

That is what you and i were talking about earlier on the program.

They don't know whether they have enough money day today.

Could this be a tool to prod congress into fomenting a deal?

They are giving advice to investors about what they think is going to happen, but they, too, say they do not include u.s. will default.

Just that the risk is higher.

They note in their press release that they are casting doubt in the full faith of the credit of the u.s., but full faith is a key phrase in why the aaa rating 10 withstands -- can withstand debt.

They think we will pay our bills, but they are concerned about the political machinations.

It is a warning shot to investors.

What is the indication for the interest rate?

And taking a look after hours and not seeing a lot of movers.

What does the interest rate fall off mean?

We got sort of a sovereign restructuring legal expert in the world handling the greet -- greek default and he said in 2011 there was a risk built-in because of the s&p downgrade, but it is hard to separate out.

You can expect we will pay maybe a couple basis points more on long-term action, but it will be hard to tell.

I guess the broader question is, does this keep the fed in the market longer if there is more uncertainty and our credit rating is at risk?

Will the fed continue to come money into the system?

For them, the bottom line is, will the economy continued to grow, will the unemployment rate continued to go down?

They will operate independently of the treasury using that criteria.

They will take action in the event of a default to keep the system moving.

For example, accepting default at treasuries knowing they will be good.

No one, including fitch, expects

This text has been automatically generated. It may not be 100% accurate.

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