(Photo: REUTERS / Brendan McDermid)
The Standard and Poor's building in New York, August 2, 2011.
Standard & Poor's Ratings Services said Friday that it does not expect negotiations over the so-called “fiscal cliff” to have an impact on the sovereign credit ratings of the U.S. federal government.
The ratings agency said it believes the same general conditions under which it stripped the U.S. of its prized “AAA” rating in August 2011 continue to exist. U.S. debt currently carries an AA-plus rating.
"Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example, through a material weakening of the Budget Control Act of 2011 without compensating measures," S&P said in a statement.
If lawmakers reach no agreement, the Congressional Budget Office estimates that the government will receive additional revenue and will forgo additional expenses of upwards of $500 billion, or 3 percent of 2013 gross domestic product, a year, according to S&P.
Such a sharp, unplanned fiscal correction, however, would likely result in the U.S. economy contracting by half a percent in 2013 and unemployment rising a percent to 9 percent by 2014.
In addition, the ratings agency view fiscal consolidation enacted by default and centered on short-term measures -- as opposed to enacted by bipartisan agreement and centered on long-term drivers of fiscal deficits-- to be vulnerable to reversal, especially in the first few weeks of the new year.
“If lawmakers reach an agreement this weekend, we believe it will likely be consistent with our previous assumptions that the tax cuts of 2001 and 2003 are extended for some period and additional measures are insufficient to place the U.S. medium-term public finances on a sustainable footing,” S&P said.
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