The US supercommittee's failure to agree a debt reduction plan means the country faces a second rating downgrade by the year end, an economist has warned.
The chief economist at Mizuho Securities, Steve Ricchuito, warned in a report a further cut to the county’s credit ratings is “only a matter of time”, the Wall Street Journal reports.
“I would not be surprised if S&P puts the Treasury on watch for another downgrade in the weeks ahead and that Moody’s or Fitch move before the 23 December date when the legislation implementing the Super Deficit Committee’s recommendations were scheduled to be enacted,” he said.
The Congressional Joint Select Committee on Deficit Reduction, announced on Monday it has failed to reach a deal to cut $1.2trn from its $15trn budget, triggering automatic spending cuts equal to that amount, which will take effect in 2013. Citigroup also said a second downgrade is in the pipeline, the WSJ’s MarketWatch reports.
“Leading politicians stating they would seek an end run around the sequesters would speed up the Moody’s downgrade, which now appears likely in the first half of next year,” said Greg Anderson, senior FX strategist at Citigroup.
The US is rated AAA with a negative outlook by Moody’s. A cut would follow the decision by Standard & Poor’s on 5 August to cut its rating for the US from AAA to AA+.
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