Analysis: Rating agencies won't cut U.S. on fiscal cliff - yet

Fri Dec 21, 2012 3:47pm EST
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By Luciana Lopez

NEW YORK (Reuters) - The stalled progress in the Washington budget battle may be rattling markets but the gridlock among policymakers will not move the rating agencies to downgrade the United States - yet.

The U.S. credit rating is far from safe. All three major agencies have negative outlooks on the United States, which suffered its first downgrade in history last year when Standard & Poor's stripped it of its triple-A rating.

But the fiscal cliff is only one event in a series of issues that will see ratings agencies looming over Washington for months.

Investors sold off riskier assets such as stocks on Friday and scooped up safe-havens such as the dollar and U.S. Treasuries after Republican Representative John Boehner failed to find enough support from his own party to push a measure raising taxes on millionaires through the House of Representatives.

With Boehner's leadership as speaker of the House on the line, markets worry he can't get any tax plan through Congress at all - much less the stricter terms Obama wants in what's becoming the latest drawn-out political budget debacle.

Dysfunction in Washington was specifically cited as one of the reasons Standard & Poor's cut the U.S. debt rating to AA-plus in August 2011. The "fiscal cliff" itself will reduce the deficit, but Fitch has said that a continuing political standoff could cost the country its top-notch rating.

"This potential for continued gridlock among legislators could have profound effects for the U.S. economy," Standard & Poor's said in a report after the November elections.

Without a budget deal among lawmakers, the fiscal cliff, a package of $600 billion in automatic tax hikes and spending cuts, will begin to kick in January 1 and could push the economy into recession.   Continued...

People walk outside the New York Stock Exchange in New York August 8, 2011. REUTERS/Shannon Stapleton