The trigger would be a likely failure by Congress to agree on a credible long-term plan to cut the US deficit, the bank said in a research note published over the weekend.
A second downgrade – either from Moody’s or Fitch – would follow Standard & Poor’s downgrade in August on concerns about the government’s budget deficit and rising debt burden. A second loss of the country’s top credit rating would be an additional blow to the sluggish US economy, Merrill said.
“The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, Merrill’s North American economist, Ethan Harris, wrote in the report.
“Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes,” he added.
The “super committee” is a bipartisan congressional committee formed to reach a deal by 23 November to cut $1.2 trillion from deficit