WASHINGTON (Reuters) - The Obama administration has grown increasingly frustrated with Standard & Poor’s during the U.S. debt limit crisis and accused the ratings agency of changing the goalposts in its downgrade warnings.
Since October, S&P has accelerated its deadline three times for when it might downgrade the United States’ coveted AAA credit rating as efforts in Washington to reach a deal on cutting long-term deficits have faltered.
S&P’s latest downgrade warning last week came as time runs short for Congress to raise the federal government’s $14.3 trillion borrowing limit. Without a deal by August 2, the government is expected to run out of money to pay its bills and then default, triggering devastating economic consequences.
In telephone calls to top S&P officials, the Obama administration has asked why the ratings agency keeps shortening its timeframe for long-term deficit reduction, according to sources familiar with the discussions.
In October 2010, S&P said it wanted to see a meaningful deal to rein in long-term deficits within three to five years.
In April, it revised the U.S. outlook to negative and warned that a deal on medium- and long-term “budgetary challenges” needed to be struck by 2013.
Last week, S&P said it could downgrade the top-notch U.S. rating within three months and cast doubt on the ability of the divided politicians to ever strike a meaningful deficit deal.
S&P said it was “erroneous” to say it was shifting the goalposts.
“The basis for changing the view was our view around the nature of the political gridlock around the whole fiscal process,” David Beers, S&P’s managing director of Sovereign & International Public Finance Ratings, told Reuters.
President Barack Obama, a Democrat, and Republican leaders in Congress are locked in urgent talks to get a broad deficit reduction package and, with it, a deal to raise the debt ceiling. But they remain some way from an agreement.
Phone calls have been made to S&P’s top sovereign credit analysts including John Chambers, according to a person with knowledge of the discussions. Chambers, managing director and chairman of S&P’s Sovereign Ratings Standing Committee, is based in New York.
Beers said S&P disagrees with the Obama administration’s belief that it can reach a deal with Congress to shift the country’s “debt trajectory.”
“If it turns out to be true and we see that ... we would expect to reaffirm the rating,” Beers said.
The relationship between the U.S. government and the ratings agencies is complex and difficult.
The agencies came under enormous criticism for giving top ratings to the toxic mortgage-backed securities at the heart of the 2008 financial crisis and have since been threatened with increased regulation by the government.
S&P has taken a different line over the debt and deficit negotiations in Washington than the two other major ratings agencies -- Fitch and Moody’s Investors Service.
Fitch and Moody’s have threatened downgrades but not shifted the time horizon for when they want to see a deficit deal done and have not issued short-term deadlines.
In the calls to S&P, the Obama administration has stressed there is the political will on both sides to achieve a broad deficit reduction deal and that if one is not struck now, then a package is likely to be agreed in the medium term.
In recent interviews, Chambers has said “now it is the time” for Republicans and Democrats to reach a debt agreement. He argued that the current gridlock in Washington is a sign a deal would be even more difficult next year, when presidential and congressional elections increase political divisions.
Editing by John O'Callaghan