S&P revises US credit outlook to ’stable’ from negative
Standard & Poor’s has removed the near-term threat of another credit rating downgrade for the US credit by revising its outlook to stable from negative, citing an improved economic and fiscal outlook.
The change effectively means there is less than a one-third chance of a downgrade in the next two years.
S&P said a key factor to its revision in the US rating outlook was the agreement reached by the US Congress to avoid the fiscal cliff, which threatened some US$600 billion in automatic tax increases and spending cuts.
S&P cut the US sovereign credit rating in August 2011 to AA-plus from the highly coveted top grade of AAA, citing political brinkmanship and gridlock in Washington that delayed an otherwise routine raising of the nation’s debt ceiling.
“We did get some movement from both sides and we think that is encouraging, at least to the point of convincing us that the dynamics in Washington are not likely to get substantially worse in the medium-term,” Nikola Swann, S&P’s lead sovereign analyst for the United States, said in a webcast with reporters.
Moody’s Investors Service and Fitch Ratings give the US credit their highest rating but both have negative outlooks.
S&P said it does not expect the debate later this year regarding a raising of the debt ceiling to result in “a sudden unplanned contraction in current spending - which could be disruptive - let alone debt service.”
The current rating already factors in a “lesser” ability of US elected officials to move quickly and effectively to deal with public finance pressures.
S&P estimates the government will need to authorise a further increase in the amount of debt it can issue near the end of the fiscal year in September.
“We think that this (debate) is likely to not be any more dramatic than was the equivalent vote in August of 2011,” said Swann.