Debt Ceiling Deal Removes Risk — Fitch

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The recent agreement on the U.S. debt ceiling has removed the near-term risk to the United States’ AAA sovereign debt rating, according to Fitch Ratings. The agency said, “Without the distraction of a near-term funding crisis for the federal government, Congress and the Administration have the space to focus on the substantive fiscal policy choices … .”

Fitch also noted that agreement on a “credible” plan for medium-term deficit reduction is likely to preserve the country’s AAA rating and lead to a revision of the agency’s outlook, from “negative” to “stable.” However, if no plan is agreed, then the negative outlook “would likely be resolved with a downgrade later in 2013.”

The federal government still faces the automatic spending cut deadline of March 1 (the sequester) and a March 27 deadline to enact a continuing resolution on the 2013 budget to avoid a government shutdown. Should a deal not be reached by either deadline, Fitch does not anticipate an immediate review but believes that such a failure would “undermine confidence” in the government’s ability ever to reach an agreement.

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