S&P and Moody’s disagree on US debt rating

Standard & Poor’s changed its outlook on U.S. debt to negative from stable over concerns Congress won’t reach an agreement on the country’s debt limit. However, another credit rating agency, Moody’s Investors Service, disagrees. S&P analysts affirmed the triple-A rating of the world’s largest economy, and said there is a chance the rating could be lowered within two years. The country’s ratings strengths include a “high-income, highly diversified, and flexible economy…backed by a strong track record of prudent and credible monetary policy, evidenced to us by its ability to support growth while containing inflationary pressures.” The outlook revision comes as Treasury Department Secretary Timothy Geithner said Sunday that Republicans recently assured the Obama administration an agreement to raise the debt ceiling would be reached. The country is expected to hit its $14.3 trillion borrowing limit in about a month. If Congress doesn’t reach an agreement prior to the middle of May, the United States may default on some liabilities. Standard & Poor’s analysts expect the political battle over the budget will continue through this year and into 2012. “Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” S&P credit analyst Nikola Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.” Markets fell in early trading Monday following the S&P announcement with the Dow Jones Industrial Average declining nearly 200 points soon after the opening bell. “The market thought the rating agencies were thinking like the market on a timetable for skepticism on the country’s AAA – several years of a grace period after 2009,” according to Jim Vogel of FTN Financial. “So, S&P’s negative outlook on the obviously not-good state of the U.S.’s fiscal condition comes as a surprise in its random appearance early on a Monday in April 2011.” Also Monday, Moody’s Investors Service said a budget accord between the Obama administration and congressional Republicans that lowers the deficit and debt would be a positive for the country’s credit rating, according to MarketWatch. Moody’s continues to rate the U.S. at triple-A with a stable outlook. FTN Financial’s Vogel questions the agencies ability to truly monitor the debt of a sovereignty. “We have said several times that sovereign ratings come down to questions of resources (and) national will,” Vogel said. “Pessimists have questioned both with regards to the U.S., and S&P’s views will recast yet another debate. They shouldn’t, because rating agencies really aren’t equipped to do sovereign analysis. Yet, markets cannot chose to ignore them, either.” Write to Jason Philyaw.

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