S&P downgrades US rating outlook to negative
Credit rating agency Standard & Poor’s has downgraded the US’ rating outlook to negative from stable.
The agency cited concerns over the US’ fiscal situation caused by a lack of decisive action on the budget deficit, which in contrast to other major economies is set to grow further this year.
The US has “…very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us,” it said.
S&P said the US’ AAA long-term and A-1+ short-term sovereign credit ratings were still in place but revised its outlook on the long-term rating to negative.
Even under its optimistic scenario that the US’s fiscal profile “would be less robust than those of other “AAA” rated sovereigns by 2013,” it added.
The move has shocked markets and caused a rush to gold and other safe haven assets, with the dollar the biggest loser.
“Although this comes as a shock to the markets and they experienced a knee jerk reaction in the immediate aftermath, it isn’t that surprising. S&P had warned the US on its credit rating back in January when it said its top rating was at risk,” said Kathleen Brooks, research director at Forex.com.
S&P said the move signals there is at least a one-in-three likelihood that it could lower the US’ long-term rating within two years.
Congress passed the 2011 budget but uncertainty still remains on how the US will cut its $14.3 trillion (£8.7 trillion) national debt.