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Risk of US credit downgrade rising

WASHINGTON — The risk of a US default remains extremely low, but a downgrade of the country’s triple-A credit rating is a growing possibility, the head of fixed-income analysis at J.P. Morgan Chase & Co. said Tuesday.

While a downgrade of the US credit rating would be a far less damaging scenario than a default, it is not without its consequences.

“The chance for a default next week is zero,” even if the Aug. 2 deadline for Congress to raise the federal government’s borrowing authority passes without a vote, Terry Belton, global head of fixed income strategy at J.P. Morgan Chase & Co. said on a conference call with reporters.

Belton said that missing an interest payment on the US debt would be “so catastrophic” that the Treasury Department would employ whatever alternative options it has to avoid it, such as selling its assets.

The immediate impact of a downgrade likely would be modest, but the medium-term impact would be “significant,” leading to a permanent increase in US borrowing costs of around $100 billion a year, Belton said. That, in turn, would hurt economic growth, he said.

“That $100 billion a year is money that’s being used to pay higher interest rates, and that’s money being taken away from other goods and services,” he said.

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