Ratings agency issues post-election warning

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.