Sequester Won't Trigger Downgrade, Debt Fight Will: Fitch

Chris Maddaloni | CQ Roll Call Group | Getty Images

Fitch Ratings said on Wednesday that a menu of automatic spending cuts would not trigger a U.S. credit downgrade, but a failure to raise the country's statutory debt limit would almost certainly cost the world's largest economy its triple-A rating.

In a report, Fitch said that the looming sequester — scheduled to take effect at the end of the week, barring a last-minute deal between Congress and the White House — or a government shutdown "would not prompt a negative rating action."

Still, the firm added that going beyond the deadline without an agreement "would further erode confidence that timely agreement will be reached on additional deficit reduction measures necessary to secure the 'AAA' rating."

A wide-ranging debate is under way over how deeply the sequester will undermine economic activity — if at all. In recent days, the White House has warned that the U.S. runs the risk of losing key government services, and that deep spending cuts will take a toll on consumer spending.

(Read More: Job Cuts From Sequester Could Be Expensive)

A long-term agreement on raising the $16 trillion debt limit, however, is a linchpin to the U.S. keeping its top-notch credit rating, Fitch warned.

Although the debt limit has been suspended until May 19, "a failure to raise the debt ceiling in a timely fashion would prompt a review and likely downgrade of the U.S. sovereign rating."

Additionally, Fitch warned that unchecked growth in deficits and debt would also pressure its credit rating. By some estimates, the U.S. debt burdens already meet or exceed 100 percent of its gross domestic product — far below Japan's ratio of more than 200 percent, yet still at level most economists consider a danger zone.

"Including the debt of states and local governments, general government gross debt (GGGD) is projected to reach 110 percent of GDP; a level Fitch does not consider consistent with the U.S. retaining its 'AAA' status," the agency added.

In August 2011, a messy battle over hiking the debt limit caused Standard & Poor's to strip the world's largest economy of its credit rating.

The Department of Justice is suing the agency on fraud charges related to its mortgage bond ratings prior to the 2008 financial crisis, yet some observers have speculated the case is payback for the 2011 credit downgrade.

(Read More: US to File Civil Charges Against S&P Over Ratings)