Do you agree with S&P’s downgrade?
I don’t agree with it. The U.S. should still be rated AAA. Moody’s has reaffirmed that, and for good reason. I think the debt ceiling deal was substantive economically and politically. It was a big step in the right direction.
Does it solve our fiscal problems?
It’s a clear path to achieving fiscal sustainability. The next step will be next year, when we lead up to the expiration of the Bush tax cuts. Policymakers will come to terms on tax revenue. I think we’ll hit our goal of $4T in 10-year deficit reduction.
What about economic impact?
The only way a downgrade becomes a threat to our recovery is if people lose faith and confidence, and then credit across the board is put under pressure. I don’t think it will — the odds are it won’t. But that’s a threat.
Yet we’re seeing major market volatility.
That’s the most worrisome development. People are nervous and on edge. If the declines in stock and bond markets undermine confidence, that will change things. The downgrade could then become self-reinforcing.
Will Moody’s stand firm on its AAA rating?
The main reason the AAA rating will stay: We’re making progress on fiscal sustainability and are more than halfway to $4T in deficit reduction. The while the economy still has problems, every indication is that the recovery will gain traction.