'Fiscal cliff' impasse doesn't affect U.S. sovereign rating - S&P

NEW YORK Sat Dec 29, 2012 2:54am IST

The Standard and Poor's building in New York, August 2, 2011. REUTERS/Brendan McDermid/Files

The Standard and Poor's building in New York, August 2, 2011.

Credit: Reuters/Brendan McDermid/Files

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NEW YORK (Reuters) - Standard & Poor's Ratings Services said on Friday it does not expect U.S. lawmakers' negotiations over the "fiscal cliff" to have an impact on the sovereign credit ratings of the U.S. federal government.

The credit ratings agency said it believes the same general conditions under which it downgraded the U.S. credit rating to AA-plus/A-1-plus from AAA in August 2011 continue to exist.

S&P said the additional tax revenues and lower government spending that will come into force if no deal is reached to avert the fiscal cliff "would likely result in the U.S. economy contracting by half a percent in 2013 and unemployment rising a percent to 9 percent by 2014."

Even if Democrats and Republicans were to reach a short-term agreement in the next several days, that agreement would be vulnerable to reversal, particularly in the next few weeks, S&P said.

The rating agency said it expects that any deal that might be reached this weekend would be in line with its previous assumptions that the tax cuts of 2001 and 2003 are extended "and additional measures are insufficient to place the U.S. medium-term public finances on a sustainable footing.

"Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example, through a material weakening of the Budget Control Act of 2011 without compensating measures," S&P said.

President Barack Obama and congressional leaders were set to meet on Friday in an effort to divert a fiscal crisis, although there were few signs of progress in resolving differences over the federal budget and expectations were low for a deal before a December 31 deadline.

Instead, members of Congress are increasingly looking at the period immediately after the deadline to come up with a retroactive fix to avoid steep tax hikes and sharp spending cuts that economists have said could plunge the country into another recession.

(Reporting by Chris Reese; Editing by Leslie Adler)

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