Fitch warns 'fiscal cliff' could cost U.S. its AAA rating

LONDON Wed Dec 19, 2012 5:27pm IST

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U.S. one dollar bills are displayed in this posed photograph in Toronto October 22, 2008.

Credit: Reuters/Mark Blinch/Files

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LONDON (Reuters) - Ratings firm Fitch said on Wednesday it is more likely to strip the United States of its triple-A status if a political deal is not reached to halt $600 billion of spending cuts and tax hikes set for early next year.

"Failure to avoid the fiscal cliff ... would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the U.S. into an avoidable and unnecessary recession," Fitch said in its 2013 global outlook, published on Wednesday.

"That could erode medium-term growth potential and financial stability. In such a scenario, there would be an increased likelihood that the U.S. would lose its AAA status."

Fitch currently assigns the United States its highest rating but with a negative outlook. Peer Standard & Poor's has already downgraded the world's biggest economy, lowering the United States to AA+ in August 2011 - a move which appears to have done little to dull the attraction of U.S. bonds for investors.

Fitch added that an agreement on a multi-year deficit reduction plan to stabilise U.S. debt and public finances was likely to see the country keep its triple-A rating.

However, it went on to say that: "failure to put in place a credible fiscal consolidation strategy during 2013 would be likely to result in the U.S. losing its AAA status."

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(Reporting by Marc Jones; Editing by Catherine Evans)

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