By Erik Wasson - 12/28/12 09:11 PM EST
Standard & Poor’s said Friday that at this point it does not expect "fiscal cliff" talks to result in further damage to the U.S. credit rating.
In the wake of the August 2011 debt-ceiling standoff, S&P lowered the U.S. rating from AAA to AA+ and placed a negative outlook on the rating. It said partisan bickering in Washington was a key factor in the change.
"If those negotiations fail to produce a plan that includes such policies, we would expect to lower the rating, probably to Aa1," Moody's said on Friday.
Further reductions in the ratings could force the U.S. to pay higher interest on its national debt, escalating the country’s financial woes.
“Standard & Poor's Ratings Services does not expect negotiations over the fiscal cliff to have an impact on its 'AA+/A-1+' ratings on the U.S. federal government,” it said in a statement.
S&P said the current negotiations continue to validate its previous conclusion on political brinksmanship.
“We believe that this characterization still holds,” it said.
As far as the negative outlook is concerned, S&P said that allowing the $500 billion in tax increases and spending cuts to occur, or reaching a short-term deal, would be roughly equivalent.
Going over the cliff would leave fiscal measures in place that would be subject to quick reversal, while a short-term deal would likely be “insufficient to place the U.S. medium-term public finances on a sustainable footing.”
“Our existing negative outlook on the U.S. rating speaks to the risk of a deliberate further loosening of fiscal policy, for example through a material weakening of the Budget Control Act of 2011 without compensating measures,” it said.
Updated at 5:47 p.m.