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Fitch affirms US credit ratings at ‘AAA’, removes downgrade danger Outlook stable

SYDNEY, March 21, (RTRS): Fitch Ratings on Friday affirmed the United States’ credit ratings at “AAA” with a stable outlook, removing the distant danger that it might downgrade the world’s largest economy. The action resolves the negative watch that Fitch had placed on the United States back in October, when political wrangling over the debt ceiling had raised the risk of default. “Fitch’s sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating downgrade,” it said in a statement. The US was embarrassed and world financial markets were roiled in 2011 when Standard & Poor’s downgraded the country’s rating to “AA plus”. S&P currently has it on a stable outlook.

Fitch said the latest crisis over the debt limit had not adversely affected US Treasury yields or the appetite of foreign investors for the debt. “Therefore Fitch does not believe the role of the US dollar, sovereign financing flexibility or debt tolerance has been materially damaged,” it said. Fitch noted the United States had greater debt tolerance than other triple-A peers owing to the unparalleled financing flexibility provided by being the issuer of the world’s reserve currency and benchmark fixed-income asset. “Strong fiscal consolidation has been achieved,” the agency added. It expected the US budget deficit to decline to 2.9 percent of gross domestic product (GDP) in the 2014 fiscal year, from 4 percent in fiscal 2013 and 6.7 percent in 2012. But Fitch cautioned there were still risks to the ratings outlook, including if authorities failed to address rising expenditure pressures from an ageing population and higher interest rates later in the decade.

Meanwhile, a Federal Reserve official who dissented from this week’s policy decision says the Fed should have outlined a plan to keep a key interest rate at a record low until unemployment falls below 5.5 percent. The Fed’s policy statement no longer cites a specific unemployment rate that might lead it eventually to raise short-term rates. The Fed instead says it will monitor a range of information before approving any rate increase. Narayana Kocherlakota, president of the Fed’s Minneapolis bank, says this shift, approved 8-1, will foster uncertainty. In a statement Friday, Kocherlakota says lowering the threshold for considering a rate hike from 6.5 percent unemployment to 5.5 percent would have enhanced the Fed’s commitment to low rates until inflation nears its 2 percent target. The unemployment rate is 6.7 percent.

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