Standard & Poor’s has taken one step to normalize its credit ratings of the United States of America. In a report that seems to have come out of the blue, S&P has maintained the AA+ credit rating of the United States. What changed in today’s call is that the outlook was raised to Stable from Negative, which implies that no credit rating downgrade surprise from S&P is on the horizon any time soon. Perhaps what will be asked now is why this change in rating was made.
S&P said:
Under our criteria, the credit strengths of the U.S. include its resilient economy, its monetary credibility, and the U.S. dollar’s status as the world’s key reserve currency. Similarly, in our view, the U.S.’s credit weaknesses, compared with higher rated sovereigns, include its fiscal performance, its debt burden, and the effectiveness of its fiscal policymaking.
We noted that this suggests that the downgrade risks have diminished, and S&P did directly assess this issue. S&P said that the likelihood of a near-term downgrade of the U.S. credit rating is now less than one in three.
S&P said real per capita GDP growth should run slightly above 1%. S&P also seems to support quantitative easing and its implications ahead. It said, “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.”
This is an upgrade that seems a bit out of the blue, and the timing is going to be questioned. To remove a negative watch in the minutes before a market opens on a Monday has not been S&P’s modus operandi when it was downgrading nations.
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