Credit rating agency Standard & Poor’s has revised up its outlook for the USA’s credit rating to stable from negative.
In 2011, S&P stripped the USA of its AAA credit rating and put it on negative outlook.
The credit rating agency also raise the outlook for the Federal Reserve and the Federal Reserve Bank of New York’s ratings to stable from negative.
S&P 500 futures and the dollar are jumping on the news.
Below is the full text from the S&P release.
———
TORONTO (Standard & Poor’s) June 10, 2013—Standard & Poor’s Ratings Services
today affirmed its ‘AA+’ long-term and ‘A-1+’ short-term unsolicited sovereign
credit ratings on the United States of America. The outlook on the long-term
rating is revised to stable from negative.
Our sovereign credit ratings on the U.S. primarily reflect our view of the
strengths of the U.S. economy and monetary system, as well as the U.S.
dollar’s status as the world’s key reserve currency. The ratings also take
into account the high level of U.S. external indebtedness; our view of the
effectiveness, stability, and predictability of U.S. policymaking and
political institutions; and the U.S. fiscal performance.
The U.S. has a high-income economy, with GDP per capita of more than $49,000
in 2012. We expect the trend rate of real per capita GDP growth to run
slightly above 1%. Furthermore, we see the U.S. economy as highly diversified
and market-oriented, with an adaptable and resilient economic structure, all
of which contribute to strong sovereign credit quality.
We believe that the U.S. monetary authorities have both the strong ability and
willingness to support sustainable economic growth and to attenuate major
economic or financial shocks. As a result, we expect the U.S. dollar to retain
its long-established position as the world’s leading reserve currency (which
contributes to the country’s high external indebtedness). We believe the
Federal Reserve System has strong control over dollar liquidity conditions
given the free-floating U.S. exchange rate regime and as demonstrated by the
Fed’s timely and effective actions to lessen the impact of major shocks since
the Great Recession of 2008/2009. Since 1991, the Fed has kept inflation
(measured by CPI) in the 0%-5% range. In addition, the U.S. monetary
transmission mechanism benefits from the unparalleled depth of the country’s
capital markets and the diversification of its financial system, in our
opinion.
We view U.S. governmental institutions (including the administration and
congress) and policymaking as generally strong, although the ability of
elected officials to address the country’s medium-term fiscal challenges has
decreased in the past decade due to what we consider to be increased
partisanship and fundamentally opposing views by the two main political
parties on the optimal size of government. Views also differ on the preferred
mix between expenditure and revenue measures in the quest to return the
federal budget toward a more balanced position. Recent examples of impasses
reached on fiscal policy include the failure of the 2010 National Commission
on Fiscal Responsibility and Reform to obtain a qualified majority of its
members in favor of its fiscal consolidation plan and the inability of the
Joint Select Committee on Deficit Reduction to reach an agreement to specify
specific fiscal measures to avoid indiscriminate cuts set down by the Budget
Control Act of 2011 (BCA11).
That said, we see tentative improvements on two fronts. On the political side,
Republicans and Democrats did reach a deal to smooth the year-end-2012 “fiscal
cliff”, and this deal did result in some fiscal tightening beyond that
envisaged in BCA11, by allowing previous tax cuts to expire on high-income
earners. The BCA11 also has engendered a fiscal adjustment, albeit in a blunt
manner. Although we expect some political posturing to coincide with raising
the government’s debt ceiling, which now appears likely to occur near the
Sept. 30 fiscal year-end, we assume with our outlook revision that the debate
will not result in a sudden unplanned contraction in current spending–which
could be disruptive–let alone debt service.
Aside from tax hikes and expenditure cuts, stronger-than-expected
private-sector contributions to economic growth, combined with increased
remittances to the government by the government-sponsored enterprises Fannie
Mae and Freddie Mac (reflecting some recovery in the housing market), have led
the Congressional Budget Office (CBO), last month, to revise down its
estimates for future government deficits. Combining CBO’s projections with our
own somewhat more cautious economic forecast and our expectations for the
state-and-local sector, and adding non-deficit contributions to government
borrowing requirements (such as student loans) leads us to expect the U.S.
general government deficit plus non-deficit borrowing requirements to fall to
about 6% of GDP this year (down from 7%, in 2012) and to just less than 4% in
2015. We now see net general government debt as a share of GDP staying broadly
stable for the next few years at around 84%, which, if it occurs, would allow
policymakers some additional time to take steps to address pent-up age-related
spending pressures.
The stable outlook indicates our appraisal that some of the downside risks to
our ‘AA+’ rating on the U.S. have receded to the point that the likelihood
that we will lower the rating in the near term is less than one in three. We
do not see material risks to our favorable view of the flexibility and
efficacy of U.S. monetary policy. We believe the U.S. economic performance
will match or exceed its peers’ in the coming years. We forecast that the
external position of the U.S. on a flow basis will not deteriorate.
We believe that our current ‘AA+’ rating already factors in a lesser ability
of U.S. elected officials to react swiftly and effectively to public finance
pressures over the longer term in comparison with officials of some more
highly rated sovereigns and we expect repeated divisive debates over raising
the debt ceiling. We expect these debates, however, to conclude without
provoking a sharp discontinuous cut in current expenditure or in debt service.
We see some risks that the recent improved fiscal performance, due in part to
cyclical and to one-off factors, could lead to complacency. A deliberate
relaxation of fiscal policy without countervailing measures to address the
nation’s longer-term fiscal challenges could place renewed downward pressure
on the rating.
TELECONFERENCE INFORMATION
Please join Standard & Poor’s on Monday, June 10, 2013, at 11 a.m. Eastern
Daylight Time for a live webcast and Q&A on Standard & Poor’s affirmation of
its ‘AA+’ rating on the United States government and its revision of the
rating outlook to stable.
Register for the complementary webcast here:
http://ratings-events.standardandpoors.com/content/Webcast
You may submit your questions for the presenters in real time via the Webcast
interface. For more information on this topic, please visit
www.spratings.com/usrating.
Please follow Money Game on Twitter and Facebook.
Join the conversation about this story »