Fitch Ratings revised the United States debt outlook to “negative,” in part because of the Supercommittee failure, and added that future deficit reduction must come from entitlement programs, not discretionary spending.
Fitch explained that “the Negative Outlook reflects Fitch’s declining confidence that timely fiscal measures necessary to place U.S. public finances on a sustainable path and secure the U.S. ‘AAA’ sovereign rating will be forthcoming following failure of the Congressional Joint Select Committee on Deficit Reduction (JSCDR) to agree at least USD1.2 trillion of measures to cut the federal budget deficit over the next 10 years as mandated under the Budget Control Act passed in August (BCA 2011).”
Assuming that the sequestration cuts go into effect, Fitch noted that “further deficit reduction will not be credible if it relies solely on further cuts in discretionary spending rather than reform to entitlements and taxation.”
The United States retained its AAA credit rating, but that might be temporary. “[F]ailure to reach agreement in 2013 on a credible deficit reduction plan and a worsening of the economic and fiscal outlook would likely result in a downgrade of the U.S. sovereign rating,” Fitch said.
