Chance of US Downgrade Even With Ceiling Agreement: S&P

Published: Friday, 15 Jul 2011 | 5:12 AM ET
By: Reuters

The risk that the United States will lose its AAA credit rating in the next three months has risen considerably, even if lawmakers reach an agreement to raise the country’s debt ceiling later this month, an S&P official said on Thursday.

Dennis Flaherty | Photographer’s Choice RF | Getty Images

The United States may be downgraded even with an agreement on the debt ceiling

John Chambers, chairman of Standard & Poor’s sovereign ratings committee, told Reuters in an interview that “this is the time” for the White House and Republicans to reach a credible budget agreement to tackle the country’s long-term debt problems.

“If you get a small agreement, that will lead to a downgrade,” Chambers warned. S&P revised in April its outlook on U.S. credit ratings to negative, which traditionally signals a downgrade in 12-18 months.

But “that horizon has shortened,” Chambers said, becauseit is very unlikely that Washington will be able to craft a meaningful budget agreement next year if it misses the chance now.

S&P is the only one of the big-three agencies with a negative outlook on U.S. ratings. Moody’s Investors Service on Wednesday placed U.S. ratings on review for a possible downgrade to account for the risk—which it considers low albeit growing—that the U.S. Treasury will miss debt payments in August if the debt ceiling is not raised.

S&P on Thursday also placed U.S. ratings on creditwatch, similar to a review for downgrade, because it also sees a growing risk of a ceiling-related technical default in August.

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