While the Standard & Poor's bond rating agency maintained the United States' AAA credit rating, it said authorities have not made clear how they will tackle long-term fiscal pressures.
_ Photograph by: Brendan Smialowski, AFP/Getty Images
NEW YORK - Standard & Poor's on Monday downgraded its credit outlook for the United States, citing a "material risk" that policymakers may not reach agreement on a plan to trim the country's large budget deficit.
While the agency maintained the country's top AAA credit rating, it said authorities have not made clear how they will tackle long-term fiscal pressures.
S&P said the move signals there's at least a one-in-three chance the firm could cut its long-term rating on the United States within two years.
"Because the U.S. has, relative to its AAA peers, what we consider to be very large budget deficits and rising government indebtedness, and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable," S&P said in a release.
U.S. government bond prices fell after S&P's announcement, while stock futures extended losses and the dollar pared gains against the euro.
"The headline has enough of a shock value. The initial reaction is that this is negative for dollar assets across the board." said Lou Brien, a market strategist with DRW Trading in Chicago.
Outstanding public U.S. debt has swollen to more than 60 per cent of total output in the aftermath of the 2007-09 financial crisis - and, with a budget deficit projected at more than $1 trillion, it is set to grow further.
A U.S. Treasury official said the S&P negative outlook underestimates the ability of U.S. lawmakers to tackle the country's fiscal challenges.