S&P: Odds of second downgrade 1-in-3

Standard & Poor’s announced Friday that it sees a one-in-three chance it will downgrade the nation’s credit rating again within the next two years, and those odds could climb if policymakers continue their fiscal standoff.

The credit rating agency reaffirmed its already downgraded rating of U.S. debt at AA+. The agency cited the heightened partisan environment as a main cause for the original downgrade, and said that the political situation could get even worse following the election.

{mosads}”Although the 2012 elections could resolve the U.S. fiscal debate, we see this outcome as unlikely,” the agency said. “If, as commentators currently expect, the election is close, the race could, in our view, reduce bipartisanship from its already low level as each side strives to rally support by more clearly distinguishing itself from the other.”

{mosads}However, the agency said it believes the one thing the two parties can agree on is the need to avoid the “fiscal cliff” — the extreme policy swings set to take effect at the beginning of next year that have driven concern from a range of experts that such a fiscal contraction could derail the economic recovery.

Instead, S&P said it currently expects the Bush-era tax rates to be extended “indefinitely,” while the automatic spending cuts set by the summer’s debt limit deal will remain in place.

Even if Congress and the White House can avoid the approaching cliff, S&P reiterated the need for Washington to come up with a credible fiscal improvement plan. And by credible, they said such a plan would need to garner “broad bipartisan support.”

If such a plan is adopted, the nation’s credit rating could stabilize, the firm said.