The U.S.’s credit rating will be downgraded again before 2011 is out, Bank of America Merrill Lynch economists have predicted.
Back in the first week of August, America’s ‘AAA’ rating was cut to an ‘AA+,’ by credit agency Standard & Poor’s . Yet the new ‘AA+’ rating is not infallible, according to a report filed on Friday.
The Bank of America Merrill Lynch paper said there is little hope of a breakthrough for the congressional “super committee” on deficit reduction. The group was formed to locate $1.5 trillion in deficit cuts over the next ten years by November 23rd, 2011. Ethan Harris, North American economist at BoA Merrill, writes:
“The ‘not-so-super’ deficit commission is very unlikely to come up with a credible deficit-reduction plan. The committee is more divided than the overall Congress. The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan. Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”
The U.S. has not been alone in losing its shiny ‘AAA’ rating, with Spain, Italy, Greece, Ireland, and Portugal all downgraded in 2011.
The current S&P outlook on the U.S. rating is ‘negative,’ and S&P has warned it “could lower the long-term rating to ‘AA’ within the next two years if we see that less reduction in spending than agreed to, higher interest rates, or new fiscal pressures during the period result in a higher general government debt trajectory than we currently assume in our base case.”
There are five credit agencies that evaluate a country’s credit worthiness, including Moody’s Investors Service and Fitch Ratings. Both still rate the U.S. ‘AAA,’ but Moody’s also has a ‘negative’ outlook.
