Fri, Nov 09, 2012 - Page 15 News List

US warned by Fitch on fiscal cliff, while Moody’s stands pat

Bloomberg

Fitch Ratings warned that the US may be downgraded next year unless lawmakers avoid the so-called fiscal cliff and raise the debt ceiling in a timely manner, while Moody’s Investors Service said it will wait to see the economic impact should the nation experience a fiscal shock.

US Congress and US President Barack Obama must confront more than US$600 billion in tax increases and spending cuts set to take effect next year or risk the economy tipping back into recession. Standard & Poor’s stripped the US of its “AAA” credit rating on Aug. 5 last year, after months of political wrangling that pushed the nation to the deadline an agreement to lift the debt ceiling.

The US rating depends on “a stabilization and then a downward trend in the ratio of federal debt” to GDP next year, according to a Moody’s statement.

Fitch also said that the nation may lose its “AAA” ranking next year if the government fails to reduce the deficit.

Moody’s would likely “await evidence that the economy could rebound from the shock” of the US falling off the fiscal cliff before considering restoring the nation’s stable outlook from negative, according to the company’s statement.

“It’s simply not our task to tell people to dispense with the political circus or go about it in a certain way,” Bart Oosterveld, managing director and head of sovereign risk division at Moody’s in Washington, said in a telephone interview. “We’re indifferent over the set of outcomes.”

The US Treasury reiterated on Oct. 31 that it expects to reach the federal debt limit “near the end of 2012.”

The agency said in a statement that it can use “extraordinary measures” that would “provide sufficient ‘headroom’ under the debt limit to allow the government to continue to meet its obligations until early in 2013.”

Failure to reach even a temporary arrangement to prevent “the full range of tax increases and spending cuts implied by the fiscal cliff and a repeat of the August 2011 debt ceiling episode” would probably result in a downgrade, Fitch said.

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