Standard & Poor's on Friday affirmed its "AA+" rating on the U.S. and said its outlook is stable.
The ratings company, which has the lowest rating on the U.S. among its major peers, said the affirmation is due to "credit strengths of the U.S. include its diversified and resilient economy, its extensive economic policy flexibility, and its unique status as the issuer of the world's leading reserve currency."
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However, S&P warned "a polarized policymaking environment and high general government debt and budget deficits constrain the ratings."
The ratings firm said the U.S. outlook remains stable because, in S&P’s view, there is “less than a one-in-three chance” the U.S. rating will need to be changed in the next two years. That’s because the U.S.’ economic and policy strengths are offset by a lack of political cohesion for bolder medium-term policy measures,” according to S&P.
S&P noted that general government debt burden in the U.S. has doubled since 2007. While that debt burden isn’t expected to rise in the next several years, S&P said it’s likely to rise toward the end of the decade unless the U.S. starts raising more revenue or cutting discretionary spending.
S&P said the recovery from the financial crisis of 2008 has been “subpar” compared with earlier recoveries, but that it compares favorably with other advanced global economies.
The ratings firm, however, was pessimistic toward long-term potential growth, saying it could be less than projected – 2% rather than 2.5% -- in part due to aging demographics which have cut into labor force participation as well as labor productivity.
On another sour note, S&P said U.S. policy makers have grown increasing unpredictable, and that Congressional gridlock has “impeded more effective policymaking” compared with the U.S.'s peers.
Battles over budget cuts and raising the debt limit have paralyzed Congress in recent years, forcing a brief government shutdown last year. Last minute deals have been brokered to break these policy logjams, but S&P warned that “more ambitious steps to stem rising medium-term fiscal pressures do not appear to be in the offing.”
S&P yanked its AAA rating from the U.S. in August 2011 in the midst of a heated Congressional budget battle, the first time any ratings firm had taken action against the largest economy in the world.
Fitch Ratings and Moody’s Investors Service have retained their AAA ratings for the U.S.