The negative outlook on the U.S.’s AAA credit-ranking was changed to stable by DBRS Inc. amid declining federal budget deficits and after Congress suspended the nation’s debt limit earlier this year until 2015.
The Toronto-based ratings company’s adjustment follows decisions by Moody’s Investors Service and Standard & Poor’s last year to change their outlooks on the U.S. to stable from negative. S&P stripped the nation of its top grade in August 2011, citing, in part, political discord about the debt limit. Moody’s gives the nation its top Aaa grade.
The issuer of the world’s reserve currency avoided a downgrade from DBRS, which confirmed its AAA rating. Stronger economic growth is forecast by a government agency to reduce the budget deficit to a seven-year low as a share of the economy.
“Uncertainty over future political cooperation remains, especially given congressional elections this November,” the ratings company said today in a statement. “DBRS considers a selective default to be unlikely given the repercussions on the political parties, on investor sentiment and on the economic recovery.”
DBRS put the U.S. ranking on review “with negative implications” in October, citing the government’s wrangling over raising the federal debt limit.
Congress suspended the limit in February until March 15, 2015, while income-tax payments are projected to further postpone the date when the government may exhaust its borrowing authority.
The 2014 deficit will fall to $492 billion this year,the Congressional Budget Office said April 14. That would be 2.8 percent of the economy, almost 32 percent below fiscal year 2013, when it was 4.1 percent. The deficit will shrink again in fiscal 2015 to $469 billion, before rising to about $1 trillion in fiscal years 2022 to 2024, the CBO said.
“The ratings could come under downward pressure in the continued absence of a fiscal plan that aligns entitlement spending with revenues over the medium term,” DBRS said. “Another political impasse over the debt ceiling that significantly increases the likelihood of a selective default could prompt DBRS to return the ratings to Under Review.”