Fitch warns over US credit rating in fiscal row

Wednesday 16 October 2013 11.14
President Barack Obama said he refuses to bend to 'Tea Party Republicans'
President Barack Obama said he refuses to bend to 'Tea Party Republicans'

Rating agency Fitch has warned it could cut the sovereign credit rating of the United States from AAA citing the political brinkmanship in the ongoing row over raising the federal debt ceiling.

It follows White House dismissal of a debt plan by house Republicans as a "partisan attempt to appease a small group of Tea Party Republicans".

Officials said Democrats and Republicans in the Senate have been working in good faith on the fiscal impasse and it is time for the House of Representatives to do the same.

In a statement, the ratings agency said: "Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a US default." 

The firm put its opinion about the creditworthiness of US government debt on what its calls 'Ratings Watch Negative'.

It gave itself until the end of the first quarter of 2014 to decide whether it will actually cut the rating.

Fitch reaffirmed however its belief that an agreement to raise the debt ceiling will be reached.

It is the only one of the major three credit rating agencies to have a negative outlook on US sovereign credit.

Standard & Poor's downgraded the rating to AA-plus with a stable outlook during the last fiscal crisis row in August 2011.

White House spokesman Amy Brundage said Mr Obama has vowed repeatedly that politicians "don't get to demand ransom for fulfilling their basic responsibilities to pass a budget and pay the nation's bills".

Democrat and Republican leaders in the Senate said there had been good progress in talks about the debt crisis and the partial government shut down.

But both sides admitted there was more work to do.

It is understood they are discussing a proposed deal that would re-open the government until January and lift the country's debt ceiling until February.

In return there would be negotiations on future plans for taxing and spending.Senate Majority Leader Harry Reid, a Democrat, and his Republican counterpart Mitch McConnell, ended a day of talks yesterday with optimistic proclamations, as details leaked out of the pact they were negotiating.

"We've made tremendous progress," Mr Reid said at the end of a Senate session during a federal holiday, underscoring the urgency of settling a fiscal crisis that was nearing a Thursday deadline.

"We hope that with good fortune...that perhaps tomorrow will be a bright day," Mr Reid said, hinting at the possible announcement of a bipartisan Senate deal at some stage today.

Mr McConnell, who has been a fierce critic of Mr Reid all year, said: "We've had a good day."

The deal currently on the table is thought to include that government operations would be funded through the middle of January, keeping in place the across-the-board "sequester" spending cuts that took effect in March.

It would also set up a new round of budget talks that would try to strike a bargain by year's end.

With the Reid-McConnell talks continuing, these details were subject to change, according to Senate aides.