Where Does Fitch Stand on Its U.S. Rating?

by: Modeled Behavior

By Adam Ozimek

I’ve been trying to pin down where Fitch stands on a downgrade. On the one hand, in the wake of the debt ceiling being raised, Fitch and Moody’s were said to reaffirm AAA rating. Media outlets were reporting it like this:

Moody’s Investors Service and Fitch Ratings reaffirmed their triple-A rating for the United States…

On the other hand, Fitch said a full review was under way and would be completed within a month. So might the full review include a downgrade, or is that off the table as the AAA rating has been reaffirmed? A quote from a Fitch spokeperson clears this up:

Analysts from Fitch Ratings were in their offices over the weekend, churning through financial data. The company has said it may take all month to decide. “Our rating is triple A until the day it changes,” said David Riley, the head of global government debt at Fitch Ratings from his office in London. “That being said, we haven’t formally reaffirmed the rating.”

Moody’s reaffirmed the country’s AAA, though it did put the country on negative outlook on Tuesday. The company’s sovereign analyst said Saturday the company is not as concerned about political gridlock.

So despite media reports like those above, Fitch has not “formally reaffirmed” the AAA rating, and a downgrade appears to be on the table for their upcoming review.

One thing to consider is that an S&P downgrade could make a Fitch downgrade more or less likely. If this spurns politicians to action, it will have helped fix the problem it identified, effectively falsifying itself. However, if the downgrade causes rates to increase or hurts the economy through weaker consumer sentiment or some other Animal Spirit / Confidence Fairy effect, then it would make our fiscal situation even worse.

But what would cause Fitch to downgrade? Reports indicate they are less concerned about political gridlock, and appear to be focused on whether either the super committee’s $1.5 trillion in desired cuts or the automatic trigger backup plan will materialize. But how much clearer will that become within the next month? Are there any signals Washington could send that would indicate they’re likely to back out of these cuts?

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