Fitch warns on U.S. rating as debt ceiling fight looms

Tue Jan 15, 2013 1:38pm EST
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By Marc Jones and William James and Daniel Bases

LONDON/NEW YORK (Reuters) - The United States faces a "material risk" of losing its AAA status if there is a repeat of the wrangling seen in 2011 over raising the country's self-imposed debt ceiling, credit ratings firm Fitch said on Tuesday.

The United States scraped up against its $16.4 trillion debt ceiling on December 31 and is now employing special measures to meet its financial obligations. The Treasury Department said those steps could be exhausted by mid-February.

Despite December's deal by U.S. politicians to avoid the "fiscal cliff" of spending cuts and tax hikes, Fitch's head of sovereign ratings, David Riley, said pressure on the country's rating was increasing.

"If we have a repeat of the August 2011 debt ceiling crisis we will place the U.S. rating under review. There will be a material risk of the U.S. rating coming down," Riley said at a conference hosted by the firm.

U.S. President Barack Obama dug in his heels on Monday, rejecting any negotiations with opposition Republican leaders over raising the U.S. borrowing limit, saying the United States needs to pay the bills it has incurred.

Republicans want Obama to cut some spending to rein in the deficit before they agree to raise the debt limit again.

Ben Bernanke, the Federal Reserve chairman, urged lawmakers to lift the ceiling and avoid a default, warning that while he was cautiously optimistic on the economy, there is still the risk it suffers from political gridlock over the deficit.

"At this stage and this year, I think it is looking very unlikely that you can achieve even $2-$3 trillion (in deficit reduction) given the way Obama has been talking recently," said David Keeble, global head of interest rate strategy at Credit Agricole CIB in New York.   Continued...