US Rating in Danger of Being Downgraded by a Second Agency

October 24 00:00 2011

New York, October 24 (RainbowNewsLine.com) – Bank of America Merrill Lynch has forecast that if Congress fails to agree on a viable long-term plan to control the US deficit, a second downgrade, either from Moody’s or Fitch, is likely to follow Standard & Poor’s August downgrade. A second loss of America’s top credit rating will be an additional blow to the sluggish US economy, Merrill said.

Ethan Harris, Merrill’s North American economist wrote in a report that “The credit rating agencies have strongly suggested that further rating cuts are likely if Congress does not come up with a credible long-run plan” to cut the deficit, and added that “Hence, we expect at least one credit downgrade in late November or early December when the super committee crashes.”

The US deficit needs to be reduced by at least $1.2 trillion and for that an impasse between Republicans and Democrats needs to be broken by November 23 to reach a deal by the bipartisan committee, known as the “super committee,” formed to address the deficit. If a plan is not agreed upon by a majority of the 12-member committee, $1.2 trillion in automatic spending cuts will be triggered, beginning in 2013.

Merrill said that those automatic cuts, mostly in discretionary spending, would weigh further on a fragile U.S. economy. It also said that the bank reduced its 2012 and 2013 growth forecasts for the United States to 1.8 percent and 1.4 percent, respectively.

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