El-Erian: Debt Deal Should Lift Markets, but Downgrade Still Possible

PIMCO CEO Mohamed El-Erian says that if passed, the proposed debt ceiling compromise should be enough to lift markets across the globe.

“This two step agreement is sufficient to lift the threat of a U.S. default and will therefore fuel a relief rally in markets around the world,” El-Erian tells Dow Jones Newswires.

El-Erian added, however, that even with passage of the proposal, the U.S. could still be downgraded by credit rating agencies. “The impact on the AAA [U.S. bond rating] will depend on whether [Standard & Poor’s] sticks to what it stated back on July 14 when it placed America’s rating on negative watch,” he said. “A strict interpretation by S&P speaks to the likelihood of a downgrade, though. I suspect the agency is under enormous pressure not to do so.”