Egan-Jones Ratings Co cut its credit rating for the US one level to “AA-,” citing the potential for the US Federal Reserve’s third round of large-scale asset purchases to weaken the dollar and drive up inflation.
US debt-to-GDP has risen to 104 percent from 66 percent in 2006, Egan-Jones said yesterday in a report.
The firm lowered the US to “AA” in April. Yields on 10 year Treasuries have fallen five basis points since the end of that month to 1.86 percent.
The Fed’s latest program is expected to “stoke the stock market and commodity prices, but in our opinion will hurt the US economy and, by extension, credit quality,” Egan-Jones said.
“The increased cost of commodities will pressure profitability of businesses, and increase the costs of consumers, thereby reducing consumer purchasing power,” it said.
The Fed on Thursday announced its third round of large-scale asset purchases since 2008, saying it plans to buy US$40 billion of mortgage debt a month. The central bank did not set any limit on the ultimate amount it would buy or the duration of the program. Policy makers also extended the prospect of near-zero interest rates until mid-2015 and said policy is to stay accommodative “for a considerable time” even after the economy strengthens.
In April, Egan-Jones lowered its rating on the US to “AA” from “AA+”. Sean Egan, the company’s founder, has long railed against the power of the three major rating agencies. Egan-Jones Rating Co is one of 10 firms the Securities and Exchange Commission recognizes as a rating organization.
Earlier this week, Moody’s said it would likely lower its “Aaa” rating on US government debt if budget negotiations fail.
Standard & Poor’s stripped the government of its “AAA” rating on its bonds in August last year. Fitch Ratings issued a warning of a potential downgrade.