Moody’s, Fitch Forgo U.S. Credit Rating Downgrade

Both Moody’s Investors Service (NYSE:MCO) and Fitch Ratings have forgone downgrading the U.S. credit rating after the debt deal was passed Tuesday, at least for now. Moody’s gave the U.S.’s triple-A rating a negative outlook, which means a downgrade is possible within the next 12 to 18 months. Fitch is still assessing the situation, and will decide by the end of the month whether to give the U.S. a negative outlook.

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Investors are still awaiting Standard & Poor’s (NYSE:MHP) decision. The agency has said that it needed any debt (NYSE:TLT) deal to save roughly $4 trillion dollars over the next ten years in order to avoid a downgrade, and the deal passed by Congress yesterday will only save $2.1 trillion.

For all ratings agencies, the state of the U.S. economy is more of a factor than the debt deal. The U.S. economy only expanded 0.4% in the first fiscal quarter of 2011, and grew 1.3% in the second. Expected GDP in 2011 was revised significantly downward long before debating lawmakers became the forefront of economic concerns. What ratings agencies will now be looking for is whether the debt deal helps or hurts economic recovery efforts, and how it effects U.S. borrowing costs over the next few years.

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