Fitch scales back chance of U.S. rating downgrade

LONDON Mon Jan 28, 2013 7:59pm IST

A bank employee counts U.S. hundred dollar bills at Kasikornbank in Bangkok January 21, 2010. REUTERS/Sukree Sukplang/Files

A bank employee counts U.S. hundred dollar bills at Kasikornbank in Bangkok January 21, 2010.

Credit: Reuters/Sukree Sukplang/Files

Related Topics

LONDON (Reuters) - Rating agency Fitch scaled back the chances of it stripping the United States of its AAA status on Monday, saying the recent agreement on the temporary suspension of the country's debt limit removed the near-term risk of a cut.

Earlier this month Fitch said their was a "material risk" of a U.S. sovereign downgrade if there was a repeat of the 2011 debt ceiling spat.

But on Monday the rating agency said last week's deal allowing the U.S. government to keep borrowing through a previous deadline of mid-May was a positive step.

"Without the distraction of a near-term funding crisis for the federal government, Congress and the Administration have the space to focus on the substantive fiscal policy choices necessary to place public finances on a sustainable path over the medium to long-term," Fitch said.

"Agreement on a credible medium-term deficit reduction plan consistent with sustaining the economic recovery would likely result in the affirmation of the U.S. 'AAA' rating and revision of the rating Outlook to Stable from Negative."

Rival rating firm Standard & Poor's has already downgraded the world's biggest economy, lowering it a notch to AA-plus in August 2011 - a move which appears to have done little to dull the attraction of U.S. bonds for investors. Like Fitch, Moody's has it in the top rating bracket but with a downgrade warning.

Despite the more upbeat tone, Fitch said a downgrade was still likely later in the year if Washington failed to use the new breathing space to put in place a credible debt reduction plan.

"In the absence of additional structural measures to narrow the gap between federal outlays and receipts, federal government debt will continue to drift higher and public debt, including that owed by state and local governments will reach around 115% percent of GDP by the end of the decade," it said.

(Reporting by Marc Jones; Editing by Hugh Lawson)

FILED UNDER:

Reuters Showcase

Markets Weekahead

Markets Weekahead

Column - Caution advised in a trader’s market  Full Article 

Reuters Poll

Reuters Poll

RBI seen holding rates steady on Tuesday, minority of analysts expect cut  Full Article 

GDP Revised

GDP Revised

Economic growth revised up by almost 50 percent  Full Article 

Australian Open

Australian Open

Williams overpowers Sharapova to win 19th grand slam  Full Article 

Houston's Daughter

Houston's Daughter

Bobbi Kristina Brown revived after found unresponsive in tub  Full Article 

India Art Fair

India Art Fair

Art fair turns India's capital into art hub.  Full Article 

Movie Review

Movie Review

"Rahasya" is an ode to Agatha Christie.  Full Article 

Review: Hawaizaada

Review: Hawaizaada

Movie Review: Hawaizaada  Full Article | Related Story 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage