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Reply #84: Fitch Drops U.S. Debt Outlook To Negative By Kevin Carmichael [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-30-11 10:00 AM
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84. Fitch Drops U.S. Debt Outlook To Negative By Kevin Carmichael

Fitch Ratings has dropped its long-term outlook for U.S. debt to negative from stable, citing the failure of the congressional super committee to agree on a plan to narrow the budget deficit.

The negative outlook reflects Fitchs 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 London-based firm said Monday in a press release. The failure of the (Joint Select Committee on Deficit Reduction) underlines the challenge of securing broad-based consensus on how to reduce the outsized federal budget deficit.

To be clear, the U.S. gets to keep its top rating from Fitch for now. Unlike Standard & Poors, which downgraded the U.S. this summer, Fitch acknowledges there is absolutely no danger of the United States government missing a debt payment for the foreseeable future. The U.S. economy remains one of the most productive in the world, reflected in levels of income per head that are substantially higher than that of major AAA peers, the agency said. Fitch said the economic recovery should regain momentum in the later half of next year and into 2013, which will ease short-term pressures on the federal governments bottom line.

But beyond that, Fitch isnt so sure. The firm projects that U.S. debt will amount to 90 per cent of gross domestic product by the end of the decade, and interest payments will climb to 20 per cent of revenue, unless politicians constrain the deficit. Such a level of government indebtedness would no longer be consistent with the U.S. retaining its AAA status despite its underlying strengths, Fitch said...All of the Big Three credit rating agencies now have rendered their verdicts on the failure of the super committee. Last week Moodys Investors Services retained its negative outlook on its own AAA rating and Standard & Poors stuck with its dim view...Fitch said a negative outlook indicates there is a slightly greater than 50-per-cent chance that the U.S. credit rating will be downgraded over the next two years. For now, the agency appears willing to let U.S. politicians get through next years election before making that decision. In the absence of material adverse shocks, Fitch does not expect to resolve the negative outlook until late 2013, taking into account any deficit-reduction strategy that emerges after congressional and presidential elections, the statement said.
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