S&P affirms US AAA/A-1+ rating but outlook drops
Monday, April 18th, 2011
Categorized as: Savings Bond news • US Credit Rating
Standard & Poor’s, the bond rating service, today affirmed the AAA/A-1+ rating of debt securities of the US federal government, but reduced its outlook to negative from stable.
From the S&P press release:
Our ratings on the U.S. rest on its high-income, highly diversified, and flexible economy. It is backed by a strong track record of prudent and credible monetary policy, evidenced to us by its ability to support growth while containing inflationary pressures. The ratings also reflect our view of the unique advantages stemming from the dollar’s preeminent place among world currencies.
“Although we believe these strengths currently outweigh what we consider to be the U.S.’s meaningful economic and fiscal risks and large external debtor position, we now believe that they might not fully offset the credit risks over the next two years at the ‘AAA’ level,” said Standard & Poor’s credit analyst Nikola G. Swann.
“More than two years after the beginning of the recent crisis, U.S. policymakers have still not agreed on how to reverse recent fiscal deterioration or address longer-term fiscal pressures,” Mr. Swann added.
“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”
Some compromise that achieves agreement on a comprehensive budgetary consolidation program–containing deficit-reduction measures in amounts near those recently proposed, and combined with meaningful steps toward implementation by 2013–is our baseline assumption and could lead us to revise the outlook back to stable. Alternatively, the lack of such an agreement or a significant further fiscal deterioration for any reason could lead us to lower the rating.