WASHINGTON: Citing the strength of the U.S. economy and the dollar’s standing in the world, Standard & Poor’s on Monday raised its outlook on the U.S. credit rating — even as the ratings agency said Washington lawmakers have a “lesser ability” than those in other countries to deal with public finance pressure in the long term.
S&P raised its outlook on the country’s long-term credit rating to stable from negative, and said the U.S. has less than a 1-in-3 chance of another downgrade in the near term.
S&P on Monday also reaffirmed its AA+ long-term sovereign credit rating on the U.S.
The ratings agency said that it has seen “tentative improvements” on two fronts. It cited the year-end fiscal cliff deal between Democrats and Republicans that put in place tax increases and spending cuts. And, S&P said, stronger-than-expected private-sector contributions to economic growth combined with increased payments to the government from Fannie Mae and Freddie Mac have led to downward revisions of U.S. deficits.
Even as the deficit outlook improves, however, the ratings agency factors into its AA+ rating what it called a “lesser ability” of U.S. lawmakers to tackle public finance pressures in the long term compared with officials from more highly rated countries.
“We expect repeated divisive debates over raising the debt ceiling,” S&P said.
In 2011, S&P stripped the U.S. of its top-tier AAA credit rating, citing lack of a satisfactory plan to stabilize the government’s long-term debt.
Treasurys fell on Monday after S&P revised its outlook.
Yields on the benchmark 10-year Treasury note are inching closer to the level seen before the August 2011 downgrade. On Monday, the 10-year note was yielding about 2.2 percent. Before the downgrade, the yield on the 10-year note was about 2.45 percent.
Speaking on a conference call, Nikola Swann, S&P’s sovereign ratings director, said that the U.S. would risk a downgrade if there were a deliberate attempt by Washington either to increase deficits or to forestall plans to cut the deficit. He also said it could be some time before the U.S. regains its Triple-A rating.
“Generally, these things don’t happen in just a few years,” he said.
Rival ratings agencies Moody’s and Fitch both now hold AAA ratings on U.S. debt. Both, however, have negative outlooks.
Treasury Secretary Jacob Lew has urged Congress to raise the U.S. debt ceiling without delay, but has said that the U.S. can take extraordinary measures until after Labor Day to keep the country from defaulting. Such measures include moves like suspending sales of state and local securities.