Fitch warns of U.S. downgrade if no budget deal in 2013

Mon Nov 28, 2011 7:56pm EST
 
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By Walter Brandimarte

NEW YORK (Reuters) - Fitch Ratings gave the United States until 2013 to come up with a "credible plan" to tackle its ballooning budget deficit or risk a downgrade of the country's coveted AAA rating.

The ratings agency on Monday revised to negative from stable the outlook on the U.S. credit rating after a special congressional committee failed last week to agree on at least $1.2 trillion in deficit-reduction measures.

The committee failure made it unlikely that any meaningful deficit plan will be adopted next year, increasing the fiscal burden on the next administration that will be elected in late 2012, Fitch said.

"The negative outlook reflects Fitch's declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. AAA sovereign rating will be forthcoming," the ratings agency said in a statement, adding that the chance of a downgrade is "slightly greater than 50 percent" now.

The news had little market impact, as a negative outlook from Fitch was widely expected.

"What it shows is that Fitch is putting the U.S. on warning that this cannot go on forever," said Michael Yoshikami, chief investment strategist at YCMNET Advisors in Walnut Creek, California.

"The markets already assumed this was going to happen. It would be different if it was a downgrade but a negative outlook is not the end of the world."

Like Moody's Investors Service, which also has a negative outlook on the U.S. Aaa rating, Fitch does not expect meaningful deficit-reduction measures in 2012, when presidential elections should exacerbate political divisions in Washington.   Continued...