If the deficit panel fails to meet its goals, automatic cuts
to defense and nondefense spending will begin in 2013. But
Wall Street fears Congress will be tempted to remove the
“triggers” if the supercommittee fails, wiping out the
second round of deficit reduction in the debt-ceiling deal
and putting the nation at risk of another downgrade.
Moody’s Investors Service on Monday that a failure of the
supercommittee would be a factor in re-evaluating the U.S.
credit rating. He said Moody’s is “agnostic” on whether
spending cuts, taxes or the trigger are the best path to
deficit reduction.
“For us, the composition is less important than the actual
magnitude [of the cuts],” a Moody's official said.
In the aftermath of the standoff over the debt ceiling, S&P
lowered the U.S. credit rating from AAA to AA+ with a negative
outlook — leaving open the possibility of a further downgrade.
S&P made clear that the inability of Congress to deal with
the nation’s fiscal problems prompted the rating dip. The
decision was met in Washington with another round of finger
pointing from Democrats and Republicans over which side was
to blame.
Despite the partisan atmosphere, Goldman Sachs expressed
optimism that the supercommittee is on track for a deal,
saying in its weekly outlook that an “agreement of some
type is the most likely scenario.”
Goldman nonetheless cautioned there remains “the potential
for a downside surprise.”
“While also possible, it is much harder to see an agreement
reaching or exceeding the $1.2 trillion target,” Goldman
political analyst Alec Phillips wrote. “Further sovereign
downgrades remain a significant risk.”
Sheila McKinney
