Credit Rating Agencies Comment On Super Committee Failure

by: Research Recap

The three major credit rating agencies have made initial comments on the failure of the Super Committee to reach agreement on a deficit cutting plan, and it is Fitch that seems closest to taking action as a result.

In Fitch’s August 16 statement, when it affirmed the US ‘AAA’ sovereign ratings with a Stable Outlook, the agency commented that it would update its US economic and fiscal projections in light of the work of the ‘Super Committee’.

Fitch also commented that failure by the Super Committee to reach agreement would likely result in a negative rating action — most likely a revision of the rating Outlook to Negative, which would indicate a greater than 50% chance of a downgrade over a two-year horizon. Less likely would be a one-notch downgrade.

Fitch said the announcement that the Super Committee was unable to reach agreement on at least USD1.2 trillion of deficit-reduction measures underscores the challenge of securing the political consensus on how to reduce the federal budget deficit and place US public finances on a sustainable path over the medium-term. Fitch now expects to conclude its review of the US sovereign rating by the end of November

Standard&Poor’s said that the ratings and outlook on the United States of America (AA+/Negative/A-1+) are not affected by the announcement of the Congressional Joint Select Committee on Deficit Reduction indicating that it could not agree on fiscal consolidation measures to put to a congressional vote. The Fiscal Committee’s inability to agree on fiscal measures that would stabilize U.S. government debt as a share of GDP is consistent with our Aug. 5 decision to lower our rating to ‘AA+’. However, we expect the caps on discretionary spending as laid out in the Budget Control Act of 2011 to remain in force.

Moody’s said the failure will be “informative but not decisive” in its analysis of its U.S. top credit rating.

Failure by the so-called super committee to reach an agreement “would not by itself lead to a rating change for the U.S. government,” a spokesman for Moody’s said in a statement. Moody’s has a negative outlook on its U.S. Aaa rating.