By Yali N’Diaye

WASHINGTON (MNI) – Amid market rumors that Fitch
Ratings is preparing to downgrade the U.S. sovereign credit rating, a
spokesman Thursday referred MNI to a July 10 statement in which the rating
agency said it “does not expect to resolve the Negative Outlook until
late 2013.”

On July 10, Fitch reaffirmed the AAA rating of the U.S. as well as
the negative outlook.

At that time, Fitch said in a statement, “Absent material adverse
shocks, Fitch does not expect to resolve the Negative Outlook until late
2013.”

It added, “Fitch will take into account any deficit-reduction
strategy that may emerge after Congressional and Presidential elections
in addition to an updated assessment of the medium-term economic and
fiscal outlook. Agreement on a multi-year deficit reduction plan that
would stabilize government indebtedness and secure confidence in the
long-run sustainability of public finances would likely result in Fitch
affirming U.S. ‘AAA’ status and revising the Rating Outlook to Stable.”

However, Fitch also warned “failure to secure agreement on
deficit-reduction that implies a continuing rise in government
indebtedness over the remainder of the decade would likely result in
Fitch downgrading the U.S. sovereign rating.”

Asked by MNI about rumors that Fitch is actually preparing
to downgrade the U.S, a spokesman for the rating agency referred to that July 10
statement
but declined to comment directly on the rumor.

Last week, Fitch managing director of sovereign ratings David Riley
told MNI that while the fiscal cliff is an important factor in the near
term, taken in the longer term context, “Failure to resolve the fiscal
cliff would further weaken confidence in the ability to put in place a
credible medium-term deficit reduction plan.”

He defined medium term as 3 to 7 years. So “in the U.S. context, we
would be looking for the debt/GDP ratio to stabilize 2015-17 horizon,”
he told MNI.

And to be credible, Riley indicated a plan would likely have to
tackle entitlements.

“Credible means permanent and specific tax and spending measures,”
he told MNI. “We have said that further reductions in discretionary
spending over and above what has already been targeted would be
difficult to achieve and thus cutting the deficit based on expenditure
reduction would have to address recurring expenditure, including
entitlement programs,” he said.

U.S.
Long-Term Credit Watch
rating Outlook

DBRS* AAA Stable

Moody’s* Aaa Negative

Fitch Ratings* AAA Negative

Standard & Poor’s* AA+ Negative

Egan-Jones* AA- N/A (rating watch developing)

Source: Rating agencies.

* Nationally Recognized Statistical Rating Organizations registered
with the Securities and exchange Commission.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MR$$$$,MGU$$$,MTABLE,MFU$$$]

–email: yndiaye@mni-news.com