August 16, 2011

Fitch Reaffirms Triple-A U.S. Debt Rating

Separately, Moody Analytics revises macroeconomic outlook downward

Fitch Ratings affirmed the United States’ Triple-A debt rating Tuesday and called the country’s outlook “stable.”

“The affirmation of the US 'AAA' sovereign rating reflects the fact that the key pillars of U.S.'s exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base,” the ratings service said in a statement. “Monetary and exchange rate flexibility further enhances the capacity of the economy to absorb and adjust to 'shocks.' ”

The company said U.S. sovereign liabilities, both the dollar and Treasury securities, remain the “global benchmark and accordingly the U.S. credit profile benefits from unparalleled financing flexibility and enhanced debt tolerance, even relative to other large 'AAA'-rated sovereigns. The dollar's status as the pre-eminent global reserve currency and depth of the US Treasury market render financing risks minimal and underpin a low cost of fiscal funding.”

However, Fitch noted that despite its “exceptional creditworthiness, the fiscal profile of the US government has deteriorated sharply and is set to become an outlier relative to 'AAA' peers. The overall level of general government debt, which includes debt incurred by states and local governments, is estimated by Fitch to reach 94% of GDP this year, the highest amongst 'AAA' sovereigns.”

The announcement came after Moody Analytics revised the U.S. macroeconomic outlook downward on Monday, writing, “The odds of a renewed recession over the next 12 months, already one in three, will increase if stock prices continue to fall.”

“The U.S. economy needs to grow 2.5% to 3% per year to add jobs fast enough to keep the unemployment rate stable. This will not happen soon,” says Mark Zandi, chief economist for Moody’s Analytics.

“Employers will have added about 1.25 million jobs between the fourth quarters of 2010 and 2011, and 2 million more by the fourth quarter of 2012. By then, U.S. employment will still total some 1 million less than expected,” Zandi added.

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