S&P upgrades outlook for US economy to 'stable'
Ratings agency said strengthening US economy contributed to decision to reverse 2011 unprecedented negative downgrade
Dominic Rushe in New York
guardian.co.uk, Monday 10 June 2013 10.44 EDT
S&P downgraded the US to 'negative' in 2011 causing a political and economic firestorm. Photograph: Spencer Platt/Getty Images
Ratings agency Standard & Poor's has upgraded its outlook for the US economy stable from negative, two years after its controversial downgrade caused a political and economic firestorm.
S&P said a strengthening US economy and the dollar's status as the world's "key reserve currency" contributed to its decision to reverse 2011's unprecedented downgrade. The rating agency assigned the US AA+ long-term and A-1+ short-term ratings.
"We believe that the US monetary authorities have both the strong ability and willingness to support sustainable economic growth and to attenuate major economic or financial shocks," the agency said in its report. S&P praised the Federal Reserve's "timely and effective actions to lessen the impact of major shocks since the Great Recession".
The report is a major reversal from S&P's shock downgrade of US debt in August 2011. That report said the weakened "effectiveness, stability, and predictability" of US policy making and political institutions was exacerbating the country's economic malaise.
In its upgrade the agency warned that the ability of politicians to address the country's medium-term fiscal challenges remains hampered by partisan bickering in Washington and "fundamentally opposing views by the two main political parties on the optimal size of government. But S&P said it saw signs of hope in the bipartisan agreement reached to deal with the "fiscal cliff" at the end of last year.
The report comes after a series of lackluster economic figures have suggested the economic recovery remains fragile. Last week the Labor Department reported that the US economy had added just 175,000 new jobs in May and the unemployment rate ticked up to 7.5% from 7.4% in April. Last week the Institute of Supply Management reported its manufacturing activity index fell in May to its lowest since June 2009.
The S&P report concludes that while difficulties remain, the long-term outlook for the US economy is bright. "The stable outlook indicates our appraisal that some of the downside risks to our 'AA+' rating on the US have receded to the point that the likelihood that we will lower the rating in the near term is less than one in three. We do not see material risks to our favorable view of the flexibility and efficacy of US monetary policy. We believe the US economic performance will match or exceed its peers' in the coming years," the agency concludes.http://www.guardian.co.uk/business/2013 ... ing-stable