State Dept: U.S. Economy 'Going to Get Downgraded'

On Election Day, the State Department invited a top economic analyst to hold a briefing for foreign reporters about the U.S. economy. The analyst’s message was clear: the U.S. is getting downgraded again. 

Kathy Bostjancic, director of Macroeconomic Analysis for the Conference Board, said bluntly, “We’re going to get downgraded.”

In 2011, ratings agency Standard & Poor’s downgraded the U.S. debt to AA+ from AAA, after Congress and President Barack Obama agreed to raise the debt ceiling by $2.4 trillion. Analysts have said another downgrade would cause investors to lose more confidence in U.S. Treasury bills, which would put the world into a greater state of economic uncertainty. 

Bostanjic said she felt the U.S. would get downgraded because those on both sides of the aisle will refuse to go through with sequestration cuts during the lame-duck session of Congress. 

“In terms of the downgrade, there is a concern – I mean, to me, it seems the odds of us getting downgraded again are very high, because I don’t see either side, Republicans or Democrats, in favor of the sequestration of spending,” Bostjancic said. “I think the reading agencies are standing ready, probably to downgrade us.”

Bostjancic said there was ” very little support to see” sequestration go through. She predicted Republicans and Democrats would agree to take sequestration off the table but not find an agreement on how to offset that in the budget and, as a consequence, the U.S. would receive another downgrade. 

She went on to tell the foreign reporters that “investors may be impacted” if U.S. Treasury bills are downgraded but “it’s probably not a low enough change in the rating that they then therefore can’t buy Treasury bills.”

“It may be the case that some before could only buy double-A or triple-A assets; there may be some negative impact,” Bostjancic said.