Posted by: youngragingbull | January 15, 2013

Fitch reiterates concerns over U.S. debt ceiling

Fitch Ratings on Tuesday reiterated its warning that a delay in raising the U.S. government’s debt ceiling would lead to a formal review of the country’s AAA sovereign credit rating.

The ratings firm said it expects that Congress will raise the ceiling and that the risk of a U.S. sovereign default “remains extremely low.”

Fitch said the debt ceiling, however, is an “ineffective and potentially dangerous mechanism” for enforcing fiscal discipline because it doesn’t prevent tax and spending decisions that will push debt issuance above the ceiling, while the sanction for not raising the limit risks a sovereign default.

Beyond the debt ceiling, Fitch warned that if policy makers fail to come up with a credible medium-term deficit reduction plan that can restore confidence in public finances, “the current negative outlook on the AAA rating is likely to be resolved with a downgrade later this year even if another debt ceiling crisis is averted.”

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