* Among big-three agencies, Fitch more positive on US
* Fitch keeps stable rating, to review it later this year
* US rating depends on additional deficit cuts, economy
(Adds detail on Moody's position, background)
By Burton Frierson and Walter Brandimarte
NEW YORK, Aug 16 Fitch Ratings on Tuesday
confirmed the United States' top-notch credit rating and, in
blatant disagreement with rival Standard & Poor's, gave a vote
of confidence to Washington's deficit-reduction efforts.
Fitch also kept a stable outlook on its U.S. AAA rating,
less than two weeks after S&P downgraded the United States to
AA-plus with a negative outlook.
The agency said, however, it will revisit its decision at
the end of the year. It threatened to slap a negative outlook
on the rating at that time if lawmakers fail to implement the
$2.1 trillion in savings agreed to earlier this month or if the
economy deteriorates significantly.
An outright one-notch downgrade is not ruled out, but less
likely, the agency said in a statement. A negative outlook
usually means a downgrade is possible in two years.
The acrimonious political battle that preceded the debt
agreement in Washington -- and which took the country to the
brink of default -- was one of the main reasons why S&P decided
to downgrade the United States on Aug. 5.
But Fitch said the deal, whose specific deficit-reduction
measures need to be agreed by a bipartisan congressional
committee, showed lawmakers can achieve sufficient political
consensus to tackle the nation's debt problems.
An additional $2 trillion in savings would be needed to put
U.S. debt ratios on a downward path over the next ten years,
said David Riley, Fitch's top analyst for the United States.
If lawmakers are able to implement the initial $2.1
trillion in savings, that will prove Fitch is right to believe
"U.S. public and political support to deficit reduction can
translate into action," he told Reuters in an interview.
"In terms of the joint select committee, why prejudge the
outcome of that when we'll know the outcome in three-and-a-half
or four-month time?" Riley said.
Video of Riley's interview: link.reuters.com/tyd33s
Fitch also said the U.S. AAA rating is supported by key
pillars: the country's pivotal role in the global financial
system and the flexible, diversified and wealthy economy that
provides the country's revenue base.
Monetary and exchange rate flexibility enhance the capacity
of the economy to absorb and adjust to shocks, it noted.
After Fitch's rather positive view on the United States,
Standard & Poor's stands more lonely than ever in its decision
to downgrade the country.
Moody's Investors Service stands in the middle. The agency
confirmed the U.S. AAA rating earlier this month with a
negative outlook, threatening to downgrade it in the next two
years for the same reasons Fitch raised -- if Congress doesn't
fully implement the agreed $2.1 trillion in savings or if the
economy falls into recession.
"S&P had a very specific basis for their concern, which was
that there was no long-run plan for budget control," said
Pierre Ellis, senior economist with Decision Economics in New
"Fitch is putting a little more faith in the common sense
of Congress and the administration with respect to getting the
budget situation under control," he added.
In a statement issued after Fitch's decision, the U.S.
Treasury Department stressed the need for further action by
"The Treasury Department continues to believe that Treasury
securities are AAA investments. Today's report underscores the
importance of Congress taking additional actions to address our
long-term fiscal challenges," Treasury spokesman Anthony Coley
Financial markets showed little reaction to the news.
Ten-year U.S. Treasury notes US10YT=RR rose a point in price
later in the day as investors worried about the European debt
crisis and continued to see U.S. bonds as a safe haven.
ECONOMY AT A TIPPING POINT
Another key element in Fitch's review of U.S. ratings later
this year will be the state of the economy.
Fitch recently revised down its economic growth forecasts
for the United States to 2.9 percent between 2012 and 2016 and
to 2.4 percent between 2017 and 2021.
Those estimates are based on the fact the United States has
"plenty of spare capacity" to support a faster economic
scenario, said Riley.
He acknowledged, however, that those estimates are "very
"We think we will be better placed towards the end of this
year to judge the near term economic outlook -- either this
soft patch is a soft patch or the U.S. economy is going into
stagnation or potentially even into recession," he said.
(Additional reporting by Ellen Freilich; Editing by
Theodore d'Afflisio, Leslie Adler and Andrew Hay)