The Fitch Ratings agency on Tuesday affirmed its AAA credit rating for the federal government, giving the U.S. a boost just two weeks after another ratings agency marked it down for the first time in history.
“The key pillars of U.S.’s exceptional creditworthiness remains intact,” the agency said, crediting the U.S. economy’s pre-eminence and the dollar’s role as the world’s chief reserve currency. The agency also said it gives the U.S. long-term outlook a “stable” rating.
And, wading into the ongoing battle on Capitol Hill, the agency threw its support behind “an appropriately formulated balanced-budget commitment that was explicitly recognized in the budget process” — which could give a boost to the kind of balanced-budget amendment to the Constitution that Republicans are pushing but that President Obama has said he opposes.
But Fitch also said the U.S. has by far the largest tax-deduction carve-outs of any major economy, at a rate equal to about 30 percent of total tax receipts. Mr. Obama has called for Congress to eliminate many of those tax breaks to bolster government revenue.
The White House welcomed the reaffirmed rating.
“We strongly believe — the Treasury Department, the administration — that America’s credit rating is and remains AAA, but that overall this is just another reminder of why we need to continue to take steps to address our deficit and long-term debt issues,” White House press secretary Jay Carney told reporters traveling with Mr. Obama in the Midwest on Tuesday.
Fitch warned that the stable rating could suffer if the new deficit “supercommittee” Congress and President Obama agreed to earlier this month does not come up with at least $1.2 trillion in projected savings — the minimum required to stave off automatic spending cuts in the future under the deal both parties reached.
Standard & Poor’s downgrade of the government’s credit rating from AAA to AA+ marked the first time since ratings began that the U.S. had earned lower than the maximum score. S&P blamed the partisan fight over raising the government’s debt ceiling for the downgrade.
Fitch, though, said the fundamentals of the U.S. economy are strong, and said that while the government’s fiscal position is shaky, it saw the debt deal as a positive step that imposes cuts even if the deficit committee doesn’t succeed.
But it did say that the U.S. is also now an “outlier relative to ‘AAA’ peers.” While the share of federal government’s debt held by the public is 70 percent, compared to around 75 percent for France and the United Kingdom, when borrowing by individual states is added in, the total government debt level in the U.S. will reach 94 percent this year — tops among all AAA-rated countries.
And Fitch said that even with the debt deal, federal debt will hit 85 percent at the end of the decade, and the agency said if the government exceeds that level, the AAA rating would again be called into question.