US still at risk of rating downgrade, feel Citi, Moody's
03 August 2011
Citi's global emerging markets strategist, Geoff Dennis, believes the worst of the risk of a debt crisis in the US is over. The US senate on Tuesday approved a last-minute deal to raise the US borrowing limit to avert a catastrophic debt default by the world's largest economy.
"We have a deal now to raise the debt ceiling, which means the worst outcome of the debt crisis has been avoided," Dennis said.
Moody's Investors Service confirmed its AAA rating of the United States, citing the decision to raise the debt limit, but kept the pressure on the government to move toward a long-term fiscal consolidation plan.
Likewise, Fitch Ratings said the agreement to raise the borrowing capacity of the United States means the risk of a sovereign default is "extremely low" and commensurate with a AAA rating.
However, Dennis said the debt deal probably will not be enough to avoid a US downgrade. "There is a 50-50 chance that the US will be downgraded," he said adding, "but the possibility of a US downgrade is more."
He feels a US downgrade will create turbulence in the markets.