Fitch Ratings takes US off negative ratings watch

Fitch Ratings on Friday affirmed U.S. long-term foreign and local currency credit ratings at 'AAA' with a stable outlook, taking the country off negative ratings watch.

In a statement, Fitch said its action resolves the Rating Watch Negative it placed the ratings under last October amid an impasse in U.S. debt ceiling negotiations that raised the risk of a default.

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"The federal debt limit was suspended in mid-February in a timely manner and in a way that avoided casting uncertainty over the full faith and credit of the U.S., in contrast to the crises in August 2011 and October 2013," the ratings agency said.

The American flag flies over the Senate side of the U.S. Capitol.
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Fitch said that the U.S. has a greater debt tolerance than its 'AAA' rated peers thanks to "financing flexibility" provided by being the issuer of the world's reserve currency and benchmark fixed income asset.

It added that the debt ceiling crises in August 2011 and October 2013 do not appear to have had a negative impact on U.S. bond yields or foreign holdings of U.S. Treasurys.

"Therefore Fitch does not believe the role of the U.S. dollar, sovereign financing flexibility or debt tolerance has been materially damaged," it said. "Strong fiscal consolidation has been achieved."

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The ratings agency said that U.S. growth prospects are more robust and demographic trends "less worrisome" compared with peers in other developed countries.

How to grow the US economy
How to grow the US economy

Fitch forecast U.S. GDP growth to accelerate from 1.9 percent in 2013 to 2.8 percent in 2014 and 3.1 percent in 2015.

"This is a formal recognition that U.S. politicians, for all their divisions, can make sensible decisions on the budget and debt ceiling to avoid another government shutdown," said Sean Callow, senior currency strategist at Westpac in Sydney.

"The ratings agency also appears to share an optimistic view on the U.S. economy voiced by the Fed [Federal Reserve] this week," he added.

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The Fed concluded a two-day policy meeting on Wednesday by scaling back its asset-purchase program by a further $10 billion to $55 billion a month and signaling that interest rates could rise six months after the end of tapering.