S&P Revises Current Outlook

Jun 10, 2013

Standard and Poor's Ratings Services confirmed today its AA+ long-term sovereign credit rating on US debt, where it has been since the August 2011 downgrade from AAA. In addition, in a move that has drawn more attention, the outlook on the long-term credit rating was upgraded from negative to stable. The rating agency cited near-term deficit projection improvements and legislative developments like the fiscal cliff deal and the implementation of the sequester.

However, the improvement in the rating does not mean that the federal government is out of the woods. Judging by its statement, S&P has not gotten more confident in the political system's functionality since it cited that as the main reason for its downgrade nearly two years ago. S&P specifically said the following about why it declined to return the US to a AAA rating:

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.

Below is an updated table of various rating agencies and their credit rating and outlooks for US debt.

U.S. Credit Rating By Agency
 Rating AgencyGradeOutlook 
 Standard & Poor'sAA+Stable
 Moody'sAaaNegative 
 FitchAAANegative
 Japanese Credit Rating AgencyAAAStable 
 Rating and Investment InformationAAAStable 

Source: Agency Outlooks

Other agencies will be watching. Bloomberg News quoted Moody's analyst Steven Hess as saying that the "rating outlook will likely be either moved back to stable or the rating downgraded during the course of this year." Presumably, how the debt ceiling plays out and whether lawmakers take steps to improve the long-term fiscal outlook will be the determinant of how they, and other rating agencies, react.