U.S. Loses AAA Credit Rating from S&P
For the first time in history, Standard & Poor's cut America's top-notch credit rating one notch to AA-plus from AAA on Friday night.
The move comes less than a week after Congress and the Obama Administration crafted a last-minute deal to reduce burgeoning government spending and increase the debt ceiling, narrowly averting a catastrophic default on U.S. sovereign debt.
The ratings company, which had previously warned that a downgrade was possible, cited both political and fiscal concerns in making its decision.
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what ... would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement.
Indeed, a scoring by the Congressional Budget Office said the bill that President Barack Obama signed into law on Aug. 2 would save roughly $2.1 trillion over the next decade -- far short of the $4 trillion "down payment" S&P had previously called for.
The heated debate on Capitol Hill and in the halls of the White House stalled repeatedly during months of negotiations, leading S&P to question the "effectiveness, stability, and predictability of American policymaking."
The ratings company said its long-term outlook is negative, noting it may reduce the rating another notch over the next two years if spending cuts fall short of expectations, interest rates increase, or if the public debt climbs more quickly than forecast.
Moody's Investor Service affirmed the country's pristine rating, while Fitch is still performing a review that it plans to complete by the end of the month.