Late last summer, the US suffered a hit to its formerly AAA credit rating after wrangling over raising the debt ceiling attracted international attention and created speculation that a default on debt was likelier than originally thought.
The world reacted with a mix of surprise and schadenfreude when Standard & Poor’s downgraded US debt from AA to AAA, but further downgrades are increasingly likely to follow now that the supercommittee has failed to agree on any sort of debt-reduction plan. MarketWatch spoke to one analyst whose outlook on the situation was bleak for the US going into 2012:
“It is just a matter of time before the government’s rating is cut,” Steve Ricchiuto, Mizuho Securities’ chief economist, said in a report.
“I would not be surprised if S&P puts the Treasury on watch for another downgrade in the weeks ahead and that Moody’s or Fitch move before the Dec. 23 date when the legislation implementing the Super Deficit Committee’s recommendations were scheduled to be enacted,” he added.
As of now, the US maintains an AAA credit rating with Moody’s, but the supercommittee impasse will almost certainly impact that status. After Monday’s announcement that the supercommittee had failed to reach an agreement, the credit rating agency commented on the situation in a statement:
“As Moody’s stated on Nov. 1, the deliberations of the Joint Select Committee would be informative for the rating analysis but not decisive, and failure to reach an agreement would not by itself lead to a rating change for the U.S. government.”
A few weeks back, Moody’s said that they planned to “incorporate any fiscal actions taken during 2012, including the budget for the 2013 fiscal year, the policy environment resulting from the elections in November 2012, and how the so-called ‘Bush tax cuts’ are dealt with at the end of that year.”