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Matthew Boesler
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REUTERS/Brendan McDermid

Credit rating agency Standard & Poor's has revised up its outlook for the USA's credit rating to stable from negative.

In 2011, S&P stripped the USA of its AAA credit rating and put it on negative outlook.

The credit rating agency also raised the outlook for the Federal Reserve and the Federal Reserve Bank of New York's ratings to stable from negative.

S&P 500 futures and the dollar are jumping on the news.

Below is the full text from the S&P release.


TORONTO (Standard & Poor's) June 10, 2013—Standard & Poor's Ratings Services today affirmed its 'AA+' long-term and 'A-1+' short-term unsolicited sovereign credit ratings on the United States of America. The outlook on the long-term rating is revised to stable from negative.

Our sovereign credit ratings on the U.S. primarily reflect our view of the  strengths of the U.S. economy and monetary system, as well as the U.S.  dollar's status as the world's key reserve currency. The ratings also take  into account the high level of U.S. external indebtedness; our view of the  effectiveness, stability, and predictability of U.S. policymaking and  political institutions; and the U.S. fiscal performance.

The U.S. has a high-income economy, with GDP per capita of more than $49,000  in 2012. We expect the trend rate of real per capita GDP growth to run  slightly above 1%. Furthermore, we see the U.S. economy as highly diversified  and market-oriented, with an adaptable and resilient economic structure, all  of which contribute to strong sovereign credit quality.

We believe that the U.S. monetary authorities have both the strong ability and  willingness to support sustainable economic growth and to attenuate major  economic or financial shocks. As a result, we expect the U.S. dollar to retain  its long-established position as the world's leading reserve currency (which  contributes to the country's high external indebtedness). We believe the  Federal Reserve System has strong control over dollar liquidity conditions  given the free-floating U.S. exchange rate regime and as demonstrated by the  Fed's timely and effective actions to lessen the impact of major shocks since  the Great Recession of 2008/2009. Since 1991, the Fed has kept inflation  (measured by CPI) in the 0%-5% range. In addition, the U.S. monetary  transmission mechanism benefits from the unparalleled depth of the country's  capital markets and the diversification of its financial system, in our  opinion.

We view U.S. governmental institutions (including the administration and  congress) and policymaking as generally strong, although the ability of  elected officials to address the country's medium-term fiscal challenges has  decreased in the past decade due to what we consider to be increased  partisanship and fundamentally opposing views by the two main political  parties on the optimal size of government. Views also differ on the preferred  mix between expenditure and revenue measures in the quest to return the  federal budget toward a more balanced position. Recent examples of impasses  reached on fiscal policy include the failure of the 2010 National Commission  on Fiscal Responsibility and Reform to obtain a qualified majority of its  members in favor of its fiscal consolidation plan and the inability of the  Joint Select Committee on Deficit Reduction to reach an agreement to specify  specific fiscal measures to avoid indiscriminate cuts set down by the Budget  Control Act of 2011 (BCA11).

That said, we see tentative improvements on two fronts. On the political side,  Republicans and Democrats did reach a deal to smooth the year-end-2012 "fiscal  cliff", and this deal did result in some fiscal tightening beyond that  envisaged in BCA11, by allowing previous tax cuts to expire on high-income  earners. The BCA11 also has engendered a fiscal adjustment, albeit in a blunt  manner. Although we expect some political posturing to coincide with raising  the government's debt ceiling, which now appears likely to occur near the  Sept. 30 fiscal year-end, we assume with our outlook revision that the debate  will not result in a sudden unplanned contraction in current spending--which  could be disruptive--let alone debt service.

Aside from tax hikes and expenditure cuts, stronger-than-expected  private-sector contributions to economic growth, combined with increased  remittances to the government by the government-sponsored enterprises Fannie  Mae and Freddie Mac (reflecting some recovery in the housing market), have led  the Congressional Budget Office (CBO), last month, to revise down its  estimates for future government deficits. Combining CBO's projections with our  own somewhat more cautious economic forecast and our expectations for the  state-and-local sector, and adding non-deficit contributions to government  borrowing requirements (such as student loans) leads us to expect the U.S.  general government deficit plus non-deficit borrowing requirements to fall to  about 6% of GDP this year (down from 7%, in 2012) and to just less than 4% in  2015. We now see net general government debt as a share of GDP staying broadly  stable for the next few years at around 84%, which, if it occurs, would allow  policymakers some additional time to take steps to address pent-up age-related  spending pressures.

The stable outlook indicates our appraisal that some of the downside risks to  our 'AA+' rating on the U.S. have receded to the point that the likelihood  that we will lower the rating in the near term is less than one in three. We  do not see material risks to our favorable view of the flexibility and  efficacy of U.S. monetary policy. We believe the U.S. economic performance  will match or exceed its peers' in the coming years. We forecast that the  external position of the U.S. on a flow basis will not deteriorate.

We believe that our current 'AA+' rating already factors in a lesser ability  of U.S. elected officials to react swiftly and effectively to public finance  pressures over the longer term in comparison with officials of some more  highly rated sovereigns and we expect repeated divisive debates over raising  the debt ceiling. We expect these debates, however, to conclude without  provoking a sharp discontinuous cut in current expenditure or in debt service. 

We see some risks that the recent improved fiscal performance, due in part to  cyclical and to one-off factors, could lead to complacency. A deliberate  relaxation of fiscal policy without countervailing measures to address the  nation's longer-term fiscal challenges could place renewed downward pressure  on the rating.


Please join Standard & Poor's on Monday, June 10, 2013, at 11 a.m. Eastern  Daylight Time for a live webcast and Q&A on Standard & Poor's affirmation of  its 'AA+' rating on the United States government and its revision of the  rating outlook to stable.

Register for the complementary webcast here: 


You may submit your questions for the presenters in real time via the Webcast  interface. For more information on this topic, please visit  www.spratings.com/usrating.

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