Is the U.S. Economy Back to Being Stable?

The United States economy got some much needed good news today, as rating agency S&P improved the governments credit rating from “negative” to “stable.”

With Congress failing to even consider a budget resolution on the Senate floor since 2009, today’s news from S&P is seen as a bit of weight off their shoulders while America’s fiscal crisis is sorted out.

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The credit agency called attention to the U.S.’s economic resilience and monetary credibility as reasons for the upgrade, noting that there is now less than a 1-in-3 chance of downgrade.

However, not all ratings agencies were so sure, with Moody’s Investor Service and Fitch Ratings have maintained a “negative” outlook, despite carrying a triple-A rating on U.S. debt. Moody’s pointed to Congress’s recent budget struggles as room for concern, warning that it would further downgrade the U.S. rating if the country doesn’t act to lower its long term debt load. S&P offered similar sentiments on the matter, admitting a rating downgrade is possible, expressing concerns over the levels of U.S. debt compared to other countries.

The budget battle in Washington has been seen both parties waging attacks on one another for the past few years now. Since 2009 Republicans and Democrats have fought over the contents of any possible budget proposal, with the GOP both criticizing Democrats for failing to pass a budget when they controlled both chambers of Congress, as well as refusing any tax increases for revenue.

Recently, though, the battle has intensified, as both the Democratically controlled Senate and the Republican House have passed competing versions of a budget for fiscal year 2014. Democrats are accusing their Republican counterparts of failing to appoint conferees, the chief reason for the proposals being stalled currently.

The White House also made its opinion known, telling the House to postpone appropriations until the two chambers agreed on spending levels.

With the news from S&P today, policymakers may not feel so compelled to take political risks in passing a budget, thus returning to a cycle of short-term spending fixes. Sean West, U.S. director at Eurasia Group, said that, “If you’re looking for a deficit grand bargain, you’re not going to get it this year. Without real pressure from the market or from voters to get the house in order, it becomes difficult to do it.”

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Market pressure on the government was high the last time the government avoided the fiscal cliff, with volatile swings forcing Congress to pass an agreement which eventually led to the sequestration currently gripping many governmental departments. However, markets have recently been preoccupied with other factors, namely the future of ‘quantitative easing’ and U.S. Federal Reserve policy.

2013 is looking quite impressive so far:

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