Tags: fitch | us | aaa | stable

Fitch Affirms US' AAA Rating, Disagrees With S&P

Tuesday, 16 Aug 2011 09:32 AM

Fitch Ratings on Tuesday confirmed the United States' top-notch credit rating and, in blatant disagreement with rival Standard & Poor's, gave a vote of confidence to Washington's deficit-reduction efforts.

Fitch also kept a stable outlook on its U.S. AAA rating, less than two weeks after S&P downgraded the United States to AA-plus with a negative outlook.

Fitch said, however, that it will revisit its decision at the end of the year. It threatened to slap a negative outlook on the rating at that time if lawmakers fail to implement the $2.1 trillion in savings that were agreed earlier this month or if the economy deteriorates significantly.

The acrimonious political battle that preceded the debt agreement in Washington — and which took the country to the brink of default — was one of the main reasons why S&P decided to downgrade the United States on August 5.

But Fitch said the agreement, whose specific deficit-reduction measures need to be agreed by a bipartisan congressional committee, showed lawmakers can achieve sufficient political consensus to tackle the nation's debt problems.

More savings would be needed to stabilize U.S. debt ratios, but the jury is still out on whether Congress will be able to agree on those, said David Riley, Fitch's top analyst for the United States.

"In terms of the joint select committee, why prejudge the outcome of that when we'll know the outcome in three-and-a-half or four-month time?" Riley told Reuters in an interview.

If lawmakers are able to agree on those measures, that will prove that Fitch is right to believe that "U.S. public and political support to deficit reduction can translate into action," he added.

Fitch said the United States' AAA rating is also underpinned by key pillars: the country's pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides the country's revenue base.

Monetary and exchange rate flexibility enhance the capacity of the economy to absorb and adjust to shocks, the agency added in a statement.

"S&P had a very specific basis for their concern, which was that there was no long-run plan for budget control," said Pierre Ellis, senior economist with Decision Economics in New York.

"Fitch certainly is correct with respect to the breadth of the United States' potential revenue sources. ... It is putting a little more faith in the common sense of Congress and the administration with respect to getting the budget situation under control."

Financial markets showed little reaction to the news, which coincided with the release of U.S. industrial output data.

U.S. government bonds pared some price gains slightly and the dollar edged up to the day's highs against the yen.

© 2015 Thomson/Reuters. All rights reserved.

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