Fitch affirms US AAA credit rating, outlook still negative

Thursday, 12 July 2012 01:10 - - {{hitsCtrl.values.hits}}

Reuters: Fitch Ratings on Tuesday affirmed its AAA credit rating on the United States and maintained a negative outlook, citing a diversified and wealthy economy that is undermined by the government’s inability to agree on deficit reduction measures.

“The uncertainty over tax and spending policies associated with the so-called ‘fiscal cliff’ weighs on the near-term economic outlook,” Fitch said in a statement.

A negative outlook gives Fitch 12 to 18 months by which it is expected to make a decision on the US sovereign credit, pushing a decision well beyond the next presidential and congressional election cycle.

“Absent material adverse shocks, Fitch does not expect to resolve the Negative Outlook until late 2013,” Fitch said.

Nearly a year ago, rival credit rating agency Standard & Poor’s made an historic cut to the US rating, dropping it by one notch to AA-plus. Moody’s Investors Service holds the US rating at Aaa. All three agencies have negative outlooks with decisions by S&P and Moody’s not expected until at least 2013.

Additional risks to the US credit outlook, Fitch said, emanate from the uncertain US fiscal policy as well as Europe’s debt crisis and recession.

It also highlighted the diminished capacity of US fiscal and monetary stimulus, referring to the near zero interest rate policy instituted by the US Federal Reserve that is expected to remain in place through late 2014.

“In Fitch’s opinion, it is likely that all or some of the tax increases and spending cuts implied under current law will be voided or at least temporarily deferred. Fitch’s fiscal and economic forecasts are premised on a reduction in the federal budget deficit of around 1.5 per cent of GDP in 2013 rather than the 3 per cent to 5 per cent contraction implied by the ‘fiscal cliff’.

Fitch is forecasting a US economic growth rate of 2.6 per cent in 2013 and unemployment falling below 8 per cent.