Fitch to downgrade US if debt repayments missed
AMERICA could lose its AAA credit rating if the government fails to raise its debt ceiling and subsequently misses interest payments in August, leading ratings agency Fitch warned yesterday.
Some Republicans have been flirting with the notion that a brief US default might be an acceptable price to pay if it forces the White House to deal with runaway spending in their negotiations over raising the national debt ceiling.
“Even a so-called ‘technical default’ would suggest a crisis of ‘governance’ from a sovereign credit and rating perspective,” Fitch said in a statement. If this were to happen, “it is unlikely that its ‘AAA’ status would be retained in the short to medium term,” it said.
The news came after the International Monetary Fund (IMF) signalled that a further programme of quantitative easing (QE3) was not necessary for US recovery.
“Our expectation is current US monetary policy is consistent with a return to moderate growth,” said IMF’s acting head John Lipsky.
Lipsky echoed the words of Federal Reserve chief Ben Bernanke, saying that the slowdown in US growth seen at the start of 2011 was likely to be temporary, caused by energy prices.
The Fed’s Beige Book also cited energy prices, as well as knock-on effects from the Japanese earthquake, for a slowdown in US growth.
“Economic activity generally continued to expand since the last report, though a few Districts indicated some deceleration,” the Book said.
Real estate “continued to show widespread weakness”, it said. Earlier in the day mortgage applications were revealed at 4.4 per cent down last week, according to data from the Mortgage Bankers Association.