Another credit-rating downgrade for US? Less than 1 in 3 risk, says S&P.

Federal deficits are falling faster than expected, leading S&P to upgrade its economic outlook for the US. That's good news for the country's credit rating.

Brendan McDermid/Reuters/File
Standard & Poor's (its New York headquarters shown here) has improved its outlook for the US economy.

America’s reputation as a creditworthy borrower just got a boost: Standard & Poor’s said Monday that an improved federal budget position has reduced the likelihood of another credit-rating downgrade for the United States.

S&P officially changed its outlook on US Treasury debt from “negative” to “stable.”

To translate the Wall Street lingo, that means the credit-rating agency doesn’t see a big risk that it will have to lower its grade for Treasury bonds this year.

That doesn’t mean everything is rosy for US finances, but it’s a step of progress.

"The likelihood of a near-term downgrade of the rating is less than one in three,” S&P said in its analysis, conducted by Nikola Swann and John Chambers. But the firm said the US has weaknesses that include its “fiscal performance, its debt burden, and the effectiveness of its fiscal policymaking.”

In 2011, S&P took America’s “sovereign” rating down a notch, changing Treasury debt from the highest rung to “AA+.” That occurred at a time when uncertainty about fiscal policy had come into sharp relief – with partisan debate raising the risk of a default on obligations as the Treasury ran into a Congress-imposed limit on federal borrowing.

Two other credit rating firms, Moody’s and Fitch, give US Treasuries a top rating but have a “negative” watch – signaling the risk of a downgrade.

Credit ratings are a symbol of expert sentiment about whether the nation is keeping its fiscal house in order. The ratings are a potentially powerful signal to investors.

Some recent good news is that federal budget deficits are falling faster than many economists expected a few months ago. That’s partly thanks to rising tax receipts in an improving economy.

S&P says it sees government debt “staying broadly stable for the next few years,… [which] would allow policymakers some additional time to take steps to address pent-up age-related spending pressures.”

The reference to demographic aging refers to the wave of baby boomer retirements, a trend poised to boost spending on things like Social Security benefits and Medicare.

of stories this month > Get unlimited stories
You've read  of  free articles. Subscribe to continue.

Unlimited digital access $11/month.

Get unlimited Monitor journalism.