Fitch will conclude its US debt review by the end August and the Associated Press has this headline on the story: US Debt deal alone won’t sustain AAA rating

On Tuesday, Fitch said the agreement was an important first step but “not the end of the process.” The rating agency wants to see a credible plan to reduce the budget deficit.

David Riley, managing director at Fitch, told The Associated Press: “There’s more to be done in order to keep the rating in the medium-term.”

Fitch expects to conclude its review of the U.S. sovereign rating by the end of August. As the debt deal currently stands, it is possible the U.S. debt rating could be downgraded at that time, Fitch said.

It is interesting to see how news agencies parse such reports.

Reuters reports the same story headline as follows: Fitch keeps US AAA rating, review ongoing

Fitch Ratings upheld its AAA rating on the United States on Tuesday after lawmakers approved spending cuts that will help avoid a U.S. default, but warned that the world’s largest economy must reduce its debt burden or face a downgrade.

Although the bill removes the threat of imminent default by raising the national debt limit enough to last until 2013, its cuts are only about half the $4 trillion in savings that ratings agencies Standard & Poor’s and Moody’s have said would be enough to confirm the country’s triple-A rating with a stable outlook.

Other ratings agencies have also warned of a potential downgrade of U.S. credit depending on the scope and size of the deficit cutting agreement.

“The more important question here is whether the bill will be enough to appease S&P;, which wanted $4 trillion in cuts, with many in the market believing that there is a realistic chance of a downgrade from S&P;,” said Gennadiy Goldberg, fixed income analyst at 4Cast Ltd. in New York

Fitch noted that without significant changes in fiscal policy, debt as a percentage of gross domestic product “will reach 100 percent by the end of 2012, and will continue to rise over the medium term – a profile that is not consistent with the United States retaining its AAA sovereign rating.”

While both headlines are true, the first more accurately conveys the mood of the moment. By the way, although a debt downgrade is well deserved, I doubt it will matter much.

Mike “Mish” Shedlock
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