Aug. 3 (Bloomberg) -- The U.S. government’s top credit rating of AAA may be lowered in the medium term even after President Barack Obama signed into law a debt-limit compromise that prevented a default, according to Fitch Ratings.
“While that agreement does take some of the near-term pressure off the U.S. AAA rating, over the medium term it’s still not completely secure,” David Riley, Fitch’s head of sovereign ratings in London, said in an interview on “InBusiness With Margaret Brennan” on Bloomberg Television. “The agreement that was set out is just an initial first step. It’s not going to be the end of the process, and there’s still some very tough choices that have to be made on tax and spending.”
Obama signed legislation yesterday that raises the nation’s debt ceiling until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. The compromise defers decisions on the nation’s finances to a bipartisan panel of lawmakers and may reduce government deficits only modestly while slowing economic growth.
Treasury two-year note yields touched a record low 0.3081 percent on demand for a refuge from a slowing economy and bets the Federal Reserve will keep borrowing costs low.
Fitch said in a statement yesterday that the U.S. is under review as the nation’s debt burden increases at a pace that isn’t consistent with its AAA sovereign credit rating, and that the slowing economy may mean “significant revisions to tax and spending policies will be required to materially reduce the budget deficit.”
The U.S. recovery that began two years ago has been losing momentum, and there’s now a 50 percent chance of a return to recession, said Martin Feldstein, a Harvard University professor and a member of the panel that dates economic slumps, in an interview yesterday on “Surveillance Midday” with Tom Keene.
“We are seriously concerned about the economic outlook, and that is a material influence in our assessment of the U.S. rating,” Riley said.
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