Sean Egan: US Credit Rating Downgrade Not Likely This Year

Monday, 07 Jan 2013 08:21 AM

By June Manning

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Egan-Jones, the independent ratings agency that cut the U.S. sovereign credit rating twice in 2012, has no plans of further downgrading the country's rating in 2013.

"This latest round [of fiscal cliff negotiations] indicates a sign of health. You have a major ideological clash going on in Congress and many people uncomfortable with it, but it is part of democracy. The more positive light is that we actually have a deal and can move forward," Sean Egan, managing director of Egan-Jones, told CNBC.

"We've gotten a lot more comfortable about the U.S., and we probably won't take additional negative actions for the foreseeable future," he added.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Citing concerns about little progress in reducing the federal debt, Egan-Jones cut the U.S. credit rating to AA from AA+ last April. Then in September, it lowered the rating to AA-, because of concerns that the quantitative easing from the Federal Reserve would hurt the country's credit quality.

Of the four major credit agencies, Egan-Jones has the lowest rating for the United States. Standard & Poor's has assigned a AA rating, while Moody's Investors Service and Fitch both have AAA ratings for the country, and all three have negative outlooks for the United States.

Egan-Jones applauded U.S. lawmakers for averting the fiscal cliff, which involved Congress passing legislation that averted $600 billion in spending cuts and tax hikes.

However, Moody's has a less optimistic view on the country. It is concerned about the fiscal cliff deal, which it believes will have little impact on improving the government's debt ratios over the medium term, adding that lawmakers must do more to remove the negative outlook on its debt rating, Reuters reported.

"Our ratings stance is to wait and see what the outcome of all of this is in the next few months, before we make any decision on the rating outlook or the rating itself," Steven Hess, lead U.S. sovereign credit analyst at Moody's, told Reuters.

Moody's added that without additional deficit reduction measures, the rating could be negatively affected further.

Nonetheless, Sean Egan said he does not anticipate other major ratings firms issuing a downgrade for the United States this year.

"The major issue for the other ratings firms is whether they are going to take [their rating] from a negative outlook to negative watch – that's the next step, and the downgrade happens after that. [But] a downgrade by another major firm is unlikely in my opinion," he noted.

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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