S&P upgrades USA on better fiscal policies

Michael Bow
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RATING agency Standard & Poor’s yesterday upgraded the US credit outlook from negative to stable on the receding risk of political stalemate over the country’s fiscal headwinds.

The agency, which downgraded the US from its much coveted AAA rating to AA+ with a negative outlook in August 2011, said recent improvements in the country’s fiscal consolidation plans meant a further downgrade was now much less likely.

“The dynamics in Washington are not likely to get substantially worse in the medium term,” sovereign rating director Nikola Swann said in a conference call last night.

The agency added that the chance of a downgrade to US debt was now less than one in three.

The move helped the S&P 500 share index pick up modestly from midday lows and made the dollar 1.3 per cent stronger against the yen in trading yesterday.

US Treasury under-secretary for domestic finance Mary Miller welcomed the upgrade. “We’re pleased that they are recognising the progress in the US economy and fiscal results,” she said.

Earlier this year, US politicians from the Republican and Democratic parties struck a deal to avoid the so called fiscal cliff, boosting fiscal tightening measures.

S&P said these were “tentative improvements” and predicted a future political debate over raising the US debt ceiling – scheduled for late September – would have little impact on spending plans.

“We expect these debates... to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service,” it said.

S&P added the US dollar would remain the world’s leading reserve currency, helping the US with its indebtedness. Analysts have predicted the dollar’s reign as a reserve currency could fade due to rising Asian trade.