Ratings agency issues post-election warning

Fitch Ratings on Wednesday warned President Obama that he needs to put the election behind him quickly and strike fiscal deals with Congress to avoid a downgrade of the United States's AAA bond rating.

“[T]he newly reelected U.S. president, Barack Obama will need to quickly secure agreement on avoiding the 'fiscal cliff' and raising the debt ceiling following Tuesday's elections,” Fitch said. 

Fitch has warned in the past that failure to strike a debt deal could lead to a downgrade of the U.S. rating, but it now made clear that lawmakers and the White House no longer have the excuse of the looming election to avoid tackling the automatic tax increases and spending cuts coming in January, as well as the need to raise the debt ceiling again. 

Fitch writes that “failure to reach even a temporary arrangement to prevent the full range of tax increases and spending cuts implied by the fiscal cliff and a repeat of the August 2011 debt-ceiling episode would mean that the general election had not resolved the political gridlock in Washington and likely result in a sovereign rating downgrade by Fitch.”

It says that resolving these matters would allow Fitch to possibly take its “negative outlook” off of the gold-plated AAA rating by the end of next year. A downgrade would otherwise come before late 2013, it said. 

The thorniest issue of the fiscal cliff remains what to do with the Bush-era tax rates. Obama has refused to entertain renewing the tax breaks for higher earners, and House Speaker John Boehner (R-Ohio) is moving swiftly to define the election as not being a “mandate” to raise taxes as part of any deal.

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