- Post 15 September 2012
- By Copy Editor
The latest downgrade brings the firm’s rating on the world’s largest economy down to “AA-,” which is three notches below the coveted “AAA” threshold.
Egan-Jones said it believes the Fed’s third round of quantitative easing, which sent stock prices surging on Thursday, “will hurt the U.S. economy and, by extension, credit quality.”
The firm said that while the program should boost equity markets, issuing additional currency and depressing interest rates through purchasing mortgage-backed securities will hurt the value of the U.S. dollar and cause a painful increase in commodity prices.
“In our opinion, QE3 will be detrimental to credit quality for the U.S.,” Egan-Jones said.
At the same time, Egan-Jones warned that the cost to finance U.S. debt will “slowly rise” as the global economy rebounds and the Fed scales back on its purchases of Treasury securities.
The ratio of U.S. debt to gross domestic product soared to 104% in recent months from 66% in 2006 and will likely increase to 110% in a year, the firm said. By comparison, Spain’s debt-to-GDP stands at 68.5%. ... continues...