Fitch: Downgrade still possible in 2013

By Bernie Becker - 06/07/12 12:10 PM ET

An official at Fitch repeated warnings Thursday that the credit rating agency would downgrade the U.S. debt rating next year if the federal government fails to craft a broad deficit-reduction plan.

Fitch had sent similar signs last year when it assigned the United States a negative outlook and suggested it would be looking for a debt plan in 2013.

Ed Parker, a sovereign ratings analyst at Fitch, told a conference in New York on Thursday that the United States was the only country with a AAA-rating that “does not have a credible fiscal consolidation plan.”

Reuters reported Parker’s comments, which were confirmed by Fitch spokesman Brian Bertsch. He also noted that the statement was consistent with Fitch’s switch to a negative outlook last year.

Meanwhile, Democrats and Republicans in Washington continue to spar over how to deal with looming tax and spending issues.

House Speaker John Boehner (R-Ohio) said last month that Republicans would again demand that any hike in the debt ceiling be accompanied by a higher amount of spending cuts and reforms.

Republicans issued the same ultimatum last year, and lawmakers and the White House agreed to a debt-ceiling deal shortly before the August deadline. That showdown also came just before Standard & Poor’s, another credit rater, gave the United States an unprecedented downgrade.

This year, lawmakers are already discussing the possible need for a short-term extension of certain policies, with Bush-era tax rates set to expire and automatic spending cuts scheduled to go into effect in 2013.

With all that in mind, top GOP lawmakers latched onto a suggestion from former President Clinton this week that Congress should temporarily extend all tax rates.

The White House has said that, after President Obama signed off on an extension of all of the Bush tax cuts in 2010, he would not continue the rates for the wealthiest taxpayers again.

Fitch put the United States on negative outlook last November after the supercommittee created by the debt-ceiling deal failed to agree on a deficit-reduction plan.

That outlook means that Fitch thinks there’s better than a 50-50 shot that it will end up downgrading the United States, but the rater has said that would likely not occur before the end of 2013.

Moody’s, a third ratings agency, has also placed the country on negative outlook.