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United States of America 'AA+/A-1+' Ratings Affirmed; Outlook Revised To Stable On Receding Fiscal Risks

Publication date: 10-Jun-2013 08:55:26 EST


  • 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 are affirming our 'AA+/A-1+' sovereign credit ratings on the U.S.
  • We are revising the rating outlook to stable to indicate our current view that the likelihood of a near-term downgrade of the rating is less than one in three.
 
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.
 

RELATED CRITERIA AND RESEARCH
 

This unsolicited rating(s) was initiated by Standard & Poor's. It may be based 
solely on publicly available information and may or may not involve the 
participation of the issuer. Standard & Poor's has used information from 
sources believed to be reliable based on standards established in our Credit 
Ratings Information and Data Policy but does not guarantee the accuracy, 
adequacy, or completeness of any information used.
Complete ratings information is available to subscribers of RatingsDirect at 
www.globalcreditportal.com and at www.spcapitaliq.com. All ratings affected by 
this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.

Primary Credit Analyst:Nikola G Swann, CFA, FRM, Toronto (1) 416-507-2582;
nikola.swann@standardandpoors.com
Secondary Contact:John B Chambers, CFA, New York (1) 212-438-7344;
john.chambers@standardandpoors.com

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