CONTINUEThis site uses cookies. By continuing to browse this site you are agreeing to our use of cookies. Find out more.
  1. Front Page
  2. News By Topic
  3. Fitch Warns Obama Over 'Fiscal Cliff'

Fitch Warns Obama Over 'Fiscal Cliff'

by Mike Godfrey,, Washington

09 November 2012

The credit ratings agency, Fitch Ratings, has warned United States President Barack Obama that swift action will be required after his re-election to avoid the 'fiscal cliff' and raise the debt ceiling, if the United States is to retain its AAA rating.

Fitch said that: "The economic policy challenge facing the President is to put in place a credible deficit-reduction plan necessary to underpin economic recovery and confidence in the full faith and credit of the US. Resolution of these fiscal policy choices would likely result in the US retaining its 'AAA' status."

"As reflected in the Negative Outlook on the rating," it added, "failure to avoid the fiscal cliff and raise the debt ceiling in a timely manner as well as securing agreement on credible deficit reduction would likely result in a rating downgrade in 2013."

The fiscal cliff relates to the over USD600bn of US tax increases and automatic spending cuts that are set to kick in on January next year if Congress takes no action. Without such action, Fitch forecasted that "the fiscal cliff would tip the US economy into an unnecessary and avoidable recession and result in an increase in the unemployment rate to above 10% in 2013".

The Congressional Budget Office itself has also projected that the expiration of those provisions, combined with the automatic spending cuts, would send the US back into recession in the first half of 2013.

In addition, Fitch looked for a timely agreement to raise the current debt ceiling, warning that a lack of action could shake confidence in the US "as a reliable borrower... prompting a formal review of the US sovereign rating".

Fitch concluded that "avoiding the fiscal cliff and a timely increase in the debt ceiling would support the economic recovery and send a positive signal that agreement can be reached on a credible plan to reduce the federal budget deficit and stabilize federal debt over the medium-term, consistent with the US retaining its AAA status."

"Conversely," it cautioned, "failure to reach even a temporary arrangement to prevent the full range of tax increases and spending cuts implied by the fiscal cliff and a repeat of the August 2011 debt ceiling episode would mean that the general election had not resolved the political gridlock in Washington and likely result in a sovereign rating downgrade by Fitch."

TAGS: tax | economics | fiscal policy | budget | tax rates | United States | individual income tax

To see today's news, click here.


Tax-News Reviews

Cyprus Review

A review and forecast of Cyprus's international business, legal and investment climate.

Visit Cyprus Review »

Malta Review

A review and forecast of Malta's international business, legal and investment climate.

Visit Malta Review »

Jersey Review

A review and forecast of Jersey's international business, legal and investment climate.

Visit Jersey Review »

Budget Review

A review of the latest budget news and government financial statements from around the world.

Visit Budget Review »

Stay Updated

Please enter your email address to join the mailing list. View previous newsletters.

By subscribing to our newsletter service, you agree to our Terms and Conditions and Privacy Policy.

To manage your mailing list preferences, please click here »